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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

COMMISSION FILE NUMBER: 1-14116

CONSUMER PORTFOLIO SERVICES, INC.
---------------------------------
(Exact name of registrant as specified in its charter)

CALIFORNIA 33-0459135
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)

16355 LAGUNA CANYON ROAD, IRVINE, CALIFORNIA 92618
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (949) 753-6800

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

Title of each class:
Rising Interest Subordinated Redeemable Securities due 2006

Name of each exchange on which registered:
New York Stock Exchange

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, No Par Value

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [ ] No [X]

The aggregate market value of the 11,492,807 shares of the registrant's common
stock held by non-affiliates, based upon the closing price of the registrant's
common stock on Nasdaq on June 30, 2004, was approximately $51,717,632. For
purposes of this computation, a registrant sponsored pension plan and all
directors, executive officers, and beneficial owners of 10 percent or more of
the registrant's common stock are deemed to be affiliates. Such determination is
not an admission that such plan, directors, executive officers, and beneficial
owners are, in fact, affiliates of the registrant. The number of shares of the
registrant's Common Stock outstanding on March 14, 2005, was 21,586,828.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant's proxy statement for its 2005 annual meeting of shareholders is
incorporated by reference into Part III of this report.
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ITEM 1. BUSINESS

GENERAL

Consumer Portfolio Services, Inc. ("CPS," and together with its subsidiaries,
the "Company") is a consumer finance company specializing in purchasing, selling
and servicing retail automobile installment purchase contracts ("Contracts")
originated by licensed motor vehicle dealers ("Dealers") in the sale of new and
used automobiles, light trucks and passenger vans. Through its purchases, the
Company provides indirect financing to Dealer customers with limited credit
histories, low incomes or past credit problems ("Sub-Prime Customers"). The
Company serves as an alternative source of financing for Dealers, allowing sales
to customers who otherwise might not be able to obtain financing. The Company
does not lend money directly to consumers. Rather, it purchases installment
Contracts from Dealers. CPS purchases Contracts under any of several programs
(the "CPS Programs") that it offers to Dealers.

CPS was incorporated and began its operations in 1991. From inception through
December 31, 2004, the Company has purchased approximately $5.4 billion of
Contracts from Dealers. In addition, the Company obtained a total of
approximately $605 million of Contracts in its 2002, 2003 and 2004 acquisitions,
described below. As of December 31, 2004, the Company had a total managed
portfolio, net of unearned interest on pre-computed Contracts, of approximately
$906.9 million, including the remaining outstanding balance of Contracts
acquired in the two acquisitions and $53.5 million of Contracts serviced for
non-affiliated owners of the Contracts.

ACQUISITIONS

In March 2002, the Company acquired MFN Financial Corporation and its
subsidiaries in a merger (the "MFN Merger"). In May 2003, the Company acquired
TFC Enterprises, Inc. and its subsidiaries in a second merger (the "TFC
Merger"). MFN Financial Corporation and its subsidiaries ("MFN") and TFC
Enterprises, Inc. and its subsidiaries ("TFC") were engaged in businesses
similar to that of the Company; buying Contracts from Dealers, repackaging those
Contracts in securitization transactions, and servicing those Contracts. The
Company acquired approximately $380 million of Contracts in the MFN Merger, and
approximately $150 million in the TFC Merger. MFN ceased acquiring Contracts in
March 2002; TFC continues to acquire Contracts under its "TFC Programs," on
terms and conditions similar to those it used prior to the TFC Merger. Contracts
purchased by TFC during the year ended December 31, 2004 accounted for less than
10% of the Company's total purchases during the year.

The Company on April 2, 2004 acquired (in the "SeaWest Asset Acquisition")
automotive finance receivables and other assets from SeaWest Financial
Corporation and its subsidiaries (collectively, "SeaWest"). The aggregate
purchase price was approximately $63.2 million, which was funded with the
proceeds of an acquisition financing facility and existing cash. The other
assets included a $2.8 million note to an affiliate of SeaWest and certain
furniture and equipment. In addition, the Company was appointed the successor
servicer of three separate term securitization transactions originally sponsored
by SeaWest (the "SeaWest Third Party Portfolio").

SECURITIZATIONS

GENERALLY

Throughout the periods for which information is presented in this report, the
Company has purchased Contracts with the intention of repackaging them in
securitizations. All such securitizations have involved identification of
specific Contracts, sale of those Contracts (and associated rights) to a special
purpose subsidiary of the Company, and issuance of asset-backed securities to
fund the transactions. Depending on the structure of the securitization, the
transaction may be properly accounted for as a sale of the Contracts, or as a
secured financing.

When structured to be treated as a secured financing, the subsidiary is
consolidated with the Company. Accordingly, the Contracts and the related
securitization trust debt appear as assets and liabilities, respectively, of the
Company on its Consolidated Balance Sheet. The Company then recognizes interest
income on the receivables and interest expense on the securities issued in the
securitization and records as expense a provision for probable credit losses on
the receivables.

When structured to be treated as a sale, the subsidiary is not consolidated with
the Company. Accordingly, the securitization removes the sold Contracts from the
Company's Consolidated Balance Sheet, the asset-backed securities (debt of the
non-consolidated subsidiary) do not appear as debt of the Company, and the
Company shows as an asset a retained residual interest in the sold Contracts.
The residual interest represents the discounted value of what the Company
expects will be the excess of future collections on the Contracts over principal
and interest due on the asset-backed securities and other expenses. That
residual interest appears on the Company's Consolidated Balance Sheet as
"Residual interest in securitizations," and its value is dependent on estimates
of the future performance of the sold Contracts.

CHANGE IN POLICY

In August 2003 the Company announced that it would structure its future
securitization transactions related to Contracts purchased under the CPS
Programs to be reflected as secured financings for financial accounting
purposes. Its six subsequent term securitizations of such finance receivables
have been so structured. Prior to August 2003, the Company had structured its
term securitization transactions related to the CPS Programs to be reflected as
sales for financial accounting purposes. In the MFN Merger and TFC Merger the
Company acquired finance receivables that had been previously securitized in
term securitization transactions that were reflected as secured financings. As
of December 31, 2004, the Company's Consolidated Balance Sheet included net
finance receivables of approximately $40.8 million and securitization trust debt
of $32.8 million related to finance receivables acquired in the two mergers, out
of totals of net finance receivables of approximately $550.2 million and
securitization trust debt of approximately $542.8 million.

CREDIT RISK RETAINED

Whether a securitization is treated as a secured financing or as a sale for
financial accounting purposes, the related special purpose subsidiary may be
unable to release excess cash to the Company if the credit performance of the
securitized Contracts falls short of pre-determined standards. Such releases
represent a material portion of the cash that the Company uses to fund its
operations. An unexpected deterioration in the performance of securitized
Contracts could therefore have a material adverse effect on both the Company's
liquidity and its results of operations, regardless of whether such Contracts
are treated as having been sold or as having been financed. For estimation of
the magnitude of such risk, it may be appropriate to look to the size of the
Company's "managed portfolio," which represents both financed and sold Contracts
as to which such credit risk is retained. The Company's managed portfolio as of
December 31, 2004 was approximately $906.9 million (this amount includes $53.5
million related to the SeaWest Third Party Portfolio on which the Company earns
only servicing fees and has no credit risk). See "-- Securitization of
Contracts," "-- The Servicing Agreements," "--Management's Discussion and
Analysis of Financial Condition and Results of Operations," and "--Liquidity and
Capital Resources."

THE MARKET WE SERVE

The Company's automobile financing programs are designed to serve customers who
generally would not qualify for automobile financing from traditional sources,
such as commercial banks, credit unions and the captive finance companies
affiliated with major automobile manufacturers. Such customers generally have
limited credit histories, low incomes or past credit problems, and are therefore
often unable to obtain credit from traditional sources of automobile financing.
(The terms "prime" and "sub-prime" reflect the Company's categorization of
customers and bear no relationship to the prime rate of interest or persons who
are able to borrow at that rate.) Because the Company serves customers who are
unable to meet the credit standards imposed by most traditional automobile
financing sources, the Company generally receives interest at rates higher than
those charged by traditional automobile financing sources. The Company also
sustains a higher level of credit losses than traditional automobile financing
sources since the Company provides financing in a relatively high risk market.

MARKETING

The Company directs its marketing efforts to Dealers, rather than to consumers.
As of December 31, 2004, the Company was a party to its standard form dealer
agreements ("Dealer Agreements") with over 5,700 Dealers. Approximately 96% of
these Dealers are franchised new car dealers that sell both new and used cars
and the remainders are independent used car dealers. For the year ended December
31, 2004, approximately 85% of the Contracts purchased under the CPS Programs
consisted of financing for used cars and the remaining 15% for new cars, as
compared to 85% used and 15% new in the year ended December 31, 2003.

The Company establishes relationships with Dealers through Company
representatives who contact a prospective Dealer to explain the Company's
Contract purchase programs, and who thereafter provide Dealer training and
support services. As of December 31, 2004, the Company had 63 representatives.
The representatives are contractually obligated to represent the Company's
financing program exclusively. The Company's representatives present the Dealer
with a marketing package, which includes the Company's promotional material
containing the terms offered by the Company for the purchase of Contracts, a
copy of the Company's standard-form Dealer Agreement, and required documentation
relating to Contracts. Marketing representatives have no authority relating to
the decision to purchase Contracts from Dealers.

Most of the Dealers under contract with CPS regularly submit Contracts to the
Company for purchase, although they are under no obligation to submit any
Contracts to the Company, nor is the Company obligated to purchase any
Contracts. During the year ended December 31, 2004, no Dealer accounted for more
than 1% of the total number of Contracts purchased by the Company under the CPS
Programs. Contracts purchased by TFC after the TFC Merger under the TFC programs
are purchased with a dealer marketing strategy that is similar to that of CPS as
described above except that the marketing efforts are directed at independent
used car dealers. The following table sets forth the geographical sources of the
Contracts purchased by the Company under the CPS Programs (based on the
addresses of the customers as stated on the Company's records) during the years
ended December 31, 2004 and 2003. Contracts purchased by TFC after the TFC
Merger are not included because such purchases accounted for less than 10% of
the total purchases during the year. All Contracts are acquired from Dealers
located within the United States.

Contracts Purchased During the Year Ended (1)
----------------------------------------------------
December 31, 2004 December 31, 2003
------------------------ ------------------------
Number Percent (2) Number Percent (2)
---------- ---------- ---------- ----------

Texas ...................... 3,422 12.1% 2,333 9.8%
California ................. 2,431 8.6% 1,461 6.1%
Louisiana .................. 1,949 6.9% 1,637 6.8%
Florida .................... 1,731 6.1% 1,343 5.6%
Pennsylvania ............... 1,676 5.9% 1,567 6.6%
Ohio ....................... 1,437 5.1% 1,398 5.8%
North Carolina ............. 1,390 4.9% 1,281 5.4%
Maryland ................... 1,373 4.8% 1,070 4.5%
Illinois ................... 1,312 4.6% 1,466 6.1%
Georgia .................... 1,263 4.5% 1,046 4.4%
Michigan ................... 1,121 4.0% 1,258 5.3%
Kentucky ................... 1,118 3.9% 948 4.0%
New York ................... 1,102 3.9% 932 3.9%
Virginia ................... 1,043 3.7% 498 2.1%
Other States ............... 6,008 21.2% 5,662 23.7%
---------- ---------- ---------- ----------
Total ...................... 28,376 100.0% 23,900 100.0%
========== ========== ========== ==========
__________

(1) Excludes purchases under the TFC Programs.
(2) Amounts may not total 100% due to rounding.

ORIGINATION OF CONTRACTS

DEALER ORIGINATION

When a retail automobile buyer elects to obtain financing from a Dealer, the
Dealer takes a credit application to submit to its financing sources. Typically,
a Dealer will submit the buyer's application to more than one financing source
for review. The Company believes the Dealer's decision to choose the Company,
rather than other financing sources, is based primarily on the monthly payment
that will be offered to the automobile buyer, the purchase price offered for the
Contract, the timeliness, consistency and predictability of response, and any
conditions to purchase.

Upon receipt of information from a Dealer, the Company's administrative
personnel order a credit report to document the buyer's credit history. If, upon
review by a Company credit analyst, it is determined that the Contract meets the
Company's underwriting criteria, or would meet such criteria with modification,
the Company requests and reviews further information and supporting
documentation and, ultimately, decides whether to purchase the Contract. When
presented with an application, the Company attempts to notify the Dealer within
two hours as to whether it would purchase the related Contract. The Company's
TFC subsidiaries finance vehicle purchases exclusively by members of the United
States armed forces.

The actual agreement for purchase of the vehicle ("Contract") is prepared by the
Dealer. The Dealer also arranges for recording the Company's lien on the
vehicle. After the appropriate documents are signed by the Dealer and the
customer, the Dealer sells the Contract to the Company. During 2001 and the
first quarter of 2002 the Company immediately sold most of the Contracts that it
purchased, and held the remainder for its own account. See "--Flow Purchase
Program."

The Company purchases Contracts under the CPS Programs from Dealers at a price
generally equal to the total amount financed under the Contracts, adjusted for
an acquisition fee, which may either increase or decrease the Contract purchase
price paid by the Company. The amount of the acquisition fee, and whether it
results in an increase or decrease to the Contract purchase price, is based on
the perceived credit risk and, in some cases, the interest rate on the Contract.
For the years ended December 31, 2004, 2003 and 2002, the average acquisition
fee charged per Contract purchased under the CPS Programs was $226, $372 and
$313, respectively, or 1.6%, 2.7% and 2.2%, respectively, of the amount
financed.

The Company attempts to control misrepresentation regarding the customer's
credit worthiness by carefully screening the Contracts it purchases, by
establishing and maintaining professional business relationships with Dealers,
and by including certain representations and warranties by the Dealer in the
Dealer Agreement. Pursuant to the Dealer Agreement, the Company may require the
Dealer to repurchase any Contract in the event that the Dealer breaches its
representations or warranties. There can be no assurance, however, that any
Dealer will have the willingness or the financial resources to satisfy its
repurchase obligations to the Company.

OBJECTIVE CONTRACT PURCHASE CRITERIA

To be eligible for purchase by the Company, a Contract must have been originated
by a Dealer that has entered into a Dealer Agreement to sell Contracts to the
Company. The Contract must be secured by a first priority lien on a new or used
automobile, light truck or passenger van and must meet the Company's
underwriting criteria. In addition, each Contract requires the customer to
maintain physical damage insurance covering the financed vehicle and naming the
Company as a loss payee. The Company or any purchaser of the Contract from the
Company may, nonetheless, suffer a loss upon theft or physical damage of any
financed vehicle if the customer fails to maintain insurance as required by the
Contract and is unable to pay for repairs to or replacement of the vehicle or is
otherwise unable to fulfill his or her obligations under the Contract.

The Company believes that its objective underwriting criteria enable it to
evaluate effectively the creditworthiness of Sub-Prime Customers and the
adequacy of the financed vehicle as security for a Contract. These criteria
include standards for price, term, amount of down payment, installment payment
and interest rate; mileage, age and type of vehicle; principal amount of the
Contract in relation to the value of the vehicle; customer income level,
employment and residence stability, credit history and debt service ability; and
other factors. Specifically, the Company's guidelines for the CPS Programs
generally limit the maximum principal amount of a purchased Contract to 115% of
wholesale book value in the case of used vehicles or to 115% of the
manufacturer's invoice in the case of new vehicles, plus, in each case, sales
tax, licensing and, when the customer purchases such additional items, a service
contract or a credit life or disability policy. The Company does not finance
vehicles that are more than eight model years old or have in excess of 85,000
miles. Under most CPS Programs, the maximum term of a purchased Contract is 72
months; a shorter maximum term may be applied based on the mileage of the
vehicle, and Contracts with the maximum term of 72 months may be purchased if
the customer is among the more creditworthy of CPS's obligors and the vehicle is
generally not more than two model years old and has less than 30,000 miles.
Contract purchase criteria are subject to change from time to time as
circumstances may warrant. Upon receiving this information with the customer's
application, the Company's underwriters verify the customer's employment,
residency, insurance and credit information provided by the customer by
contacting various parties noted on the customer's application, credit
information bureaus and other sources. In addition, prior to purchasing a
Contract under the CPS Programs, CPS contacts each customer by telephone to
confirm that the Customer understands and agrees to the terms of the related
Contract.

CREDIT SCORING. Under the CPS Programs, the Company uses a proprietary scoring
model to assign to each Contract a "credit score" at the time the application is
received from the Dealer and the customer's credit information is retrieved from
the credit reporting agencies. The credit score is based on a variety of
parameters, such as the customer's employment and residence stability, the
amount of the down payment, and the age and mileage of the vehicle. The Company
has developed the credit score as a means of improving its allocation of credit
evaluation resources, and managing the risk inherent in the sub-prime market.

CHARACTERISTICS OF CONTRACTS. All of the Contracts purchased by the Company are
fully amortizing and provide for level payments over the term of the Contract.
The average original principal amount financed, under the CPS Programs and in
the year ended December 31, 2004, was approximately $14,410, with an average
original term of approximately 61 months and an average down payment amount of
13.8%. Based on information contained in customer applications, for this
12-month period, the retail purchase price of the related automobiles averaged
$14,812 (which excludes tax, license fees, and any additional costs such as a
maintenance contract), the average age of the vehicle at the time the Contract
was purchased was three years, and CPS customers averaged approximately 38 years
of age, with approximately $38,463 in average annual household income and an
average of 5.0 years history with his or her current employer.

All Contracts may be prepaid at any time without penalty. In the event a
customer elects to prepay a Contract in full, the payoff amount is calculated by
deducting the unearned interest from the Contract balance, in the case of a
pre-computed Contract, or by adding accrued interest to the Contract balance, in
the case of a simple interest Contract, plus, in either case, adding any accrued
fees such as late fees.

Each Contract purchased by the Company prohibits the sale or transfer of the
financed vehicle without the Company's consent and allows for the acceleration
of the maturity of a Contract upon a sale or transfer without such consent. The
Company generally does not consent to a sale or transfer of a financed vehicle
unless the related Contract is prepaid in full.

DEALER COMPLIANCE. The Dealer Agreement and related assignment contain
representations and warranties by the Dealer that an application for state
registration of each financed vehicle, naming the Company as secured party with
respect to the vehicle, was effected at the time of sale of the related Contract
to the Company, and that all necessary steps have been taken to obtain a
perfected first priority security interest in each financed vehicle in favor of
the Company under the laws of the state in which the financed vehicle is
registered. If a Dealer or the Company, because of clerical error or otherwise,
has failed to take such action in a timely manner, or to maintain such interest
with respect to a financed vehicle, neither the Company nor any purchaser of the
related Contract from the Company would have a perfected security interest in
the financed vehicle and its security interest may be subordinate to the
interest of, among others, subsequent purchasers of the financed vehicle,
holders of perfected security interests and a trustee in bankruptcy of the
customer. The security interest of the Company or the purchaser of a Contract
may also be subordinate to the interests of third parties if the interest is not
perfected due to administrative error by state recording officials. Moreover,
fraud or forgery could render a Contract unenforceable. In such events, the
Company could suffer a loss with respect to the related Contract. In the event
the Company suffers such a loss, it will generally have recourse against the
Dealer from which it purchased the Contract. This recourse will be unsecured,
and there can be no assurance that any particular Dealer will satisfy its
obligations to the Company.

SERVICING OF CONTRACTS

GENERAL. The Company's servicing activities consist of mailing monthly billing
statements; collecting, accounting for and posting of all payments received;
responding to customer inquiries; taking all necessary action to maintain the
security interest granted in the financed vehicle or other collateral;
investigating delinquencies; communicating with the customer to obtain timely
payments; repossessing and liquidating the collateral when necessary; and
generally monitoring each Contract and the related collateral.

COLLECTION PROCEDURES. The Company believes that its ability to monitor
performance and collect payments owed from Sub-Prime Customers is primarily a
function of its collection approach and support systems. The Company believes
that if payment problems are identified early and the Company's collection staff
works closely with customers to address these problems, it is possible to
correct many of them before they deteriorate further. To this end, the Company
utilizes pro-active collection procedures, which include making early and
frequent contact with delinquent customers; educating customers as to the
importance of maintaining good credit; and employing a consultative and customer
service approach to assist the customer in meeting his or her obligations, which
includes attempting to identify the underlying causes of delinquency and cure
them whenever possible. In support of its collection activities, the Company
maintains a computerized collection system specifically designed to service
automobile installment sale contracts with Sub-Prime Customers and similar
consumer obligations.

With the aid of its high-penetration automatic dialer, as well as manual efforts
made by collection staff, the Company typically attempts to make telephonic
contact with delinquent customers on the sixth day after their monthly payment
due date. Using coded instructions from a collection supervisor, the automatic
dialer will attempt to contact customers based on their physical location, state
of delinquency, size of balance or other parameters. If the automatic dialer
obtains a "no-answer" or a busy signal, it records the attempt on the customer's
record and moves on to the next call. If a live voice answers the automatic
dialer's call, the call is transferred to a waiting collector as the customer's
pertinent information is simultaneously displayed on the collector's
workstation. The collector then inquires of the customer the reason for the
delinquency and when the Company can expect to receive the payment. The
collector will attempt to get the customer to make a promise for the delinquent
payment for a time generally not to exceed one week from the date of the call.
If the customer makes such a promise, the account is routed to a promise queue
and is not contacted until the outcome of the promise is known. If the payment
is made by the promise date and the account is no longer delinquent, the account
is routed out of the collection system. If the payment is not made, or if the
payment is made, but the account remains delinquent, the account is returned to
the queue for subsequent contacts.

If a customer fails to make or keep promises for payments, or if the customer is
uncooperative or attempts to evade contact or hide the vehicle, a supervisor
will review the collection activity relating to the account to determine if
repossession of the vehicle is warranted. Generally, such a decision will occur
between the 45th and 90th day past the customer's payment due date, but could
occur sooner or later, depending on the specific circumstances. At the time the
vehicle is repossessed the Company will stop accruing interest in this Contract,
and reclassify the remaining Contract balance to other assets. In addition the
Company will apply a specific reserve to this Contract so that the net balance
represents the estimated fair value less costs to sell.

If the Company elects to repossess the vehicle, it assigns the task to an
independent local repossession service. Such services are licensed and/or bonded
as required by law. When the vehicle is recovered, the repossessor delivers it
to a wholesale auto auction, where it is kept until sold. The Uniform Commercial
Code ("UCC") and other state laws regulate repossession sales by requiring that
the secured party provide the customer with reasonable notice of the date, time
and place of any public sale of the collateral, the date after which any private
sale of the collateral may be held and of the customer's right to redeem the
financed vehicle prior to any such sale and by providing that any such sale be
conducted in a commercially reasonable manner. Financed vehicles that have been
repossessed are generally resold by the Company through unaffiliated automobile
auctions, which are attended principally by car dealers. Net liquidation
proceeds are applied to the customer's outstanding obligation under the
Contract. Such proceeds usually are insufficient to pay the customer's
obligation in full, resulting in a deficiency.

Under the UCC and other laws applicable in most states, a creditor is entitled
to obtain a judgment against a customer for such a deficiency. However, some
states impose prohibitions or limitations on deficiency judgments. When
obtained, deficiency judgments are entered against defaulting individuals who
may have little capital or income. Therefore, in many cases, it may not be
useful to seek a deficiency judgment against a customer or, if one is obtained,
it may be settled at a significant discount.

Once a Contract becomes greater than 90 days delinquent, the Company does not
recognize additional interest income until the borrower under the Contract makes
sufficient payments to be less than 90 days delinquent. Any payments received by
a borrower that is greater than 90 days delinquent is first applied to accrued
interest and then to principal reduction.

CREDIT EXPERIENCE

The Company's financial results are dependent on the performance of the
Contracts in which it retains an ownership interest. The tables below document
the delinquency, repossession and net credit loss experience of all Contracts
that the Company was servicing (excluding Contracts from the SeaWest Third Party
Portfolio) as of the respective dates shown. Credit experience for CPS, MFN
(since the date of the MFN Merger), TFC (since the date of the TFC Merger) and
SeaWest (since the date of the SeaWest Asset Acquisition) is shown on both a
combined and individual basis in the tables below.

DELINQUENCY EXPERIENCE (1)

CPS, MFN, TFC AND SEAWEST COMBINED

Delinquency Experience (Dollars in thousands)
Gross servicing portfolio (1) ...... 83,018 $873,880 84,860 $773,220 86,940 $616,519
Period of delinquency (2)
31-60 days ......................... 2,106 19,010 2,506 17,982 3,658 18,388
61-90 days ......................... 1,069 8,051 1,340 8,942 1,541 6,595
91+ days ........................... 1,176 7,758 1,522 9,452 825 3,422
--------- --------- --------- --------- --------- ---------
Total delinquencies (2) ............ 4,351 34,819 5,368 36,376 6,024 28,405
Amount in repossession (3) ......... 1,408 14,090 1,242 11,751 1,402 10,835
--------- --------- --------- --------- --------- ---------
Total delinquencies and
amount in repossession (2) ...... 5,759 $ 48,909 6,610 $ 48,127 7,426 $ 39,240
========= ========= ========= ========= ========= =========

Delinquencies as a percentage
of gross servicing portfolio .... 5.2% 4.0% 6.3% 4.7% 6.9% 4.6%

Total delinquencies and
amount in repossession as a
percentage of gross servicing
portfolio ....................... 6.9% 5.6% 7.8% 6.2% 8.5% 6.4%

Extension Experience
Contracts with One Extension (4) ... 9,661 $ 86,138 10,004 $ 76,617 16,284 $ 90,846
Contracts with Two or More
Extensions (4) .................. 4,383 23,659 7,347 34,224 10,586 45,355
--------- --------- --------- --------- --------- ---------

Total Contracts with Extensions .... 14,044 $109,797 17,351 $110,841 26,870 $136,201
========= ========= ========= ========= ========= =========

CPS

December 31, 2004 December 31, 2003 December 31, 2002
----------------------- ----------------------- -----------------------
Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount
--------- --------- --------- --------- --------- ---------
Delinquency Experience (Dollars in thousands)
Gross servicing portfolio (1)....... 59,124 $706,810 47,615 $543,776 43,244 $394,845
Period of delinquency (2)
31-60 days.......................... 1,302 14,546 1,175 11,766 1,734 10,738
61-90 days.......................... 520 5,430 657 5,719 643 3,619
91+ days............................ 288 3,139 393 3,105 282 1,508
--------- --------- --------- --------- --------- ---------
Total delinquencies (2)............. 2,110 23,115 2,225 20,590 2,659 15,865
Amount in repossession (3).......... 891 9,929 725 8,434 654 6,305
--------- --------- --------- --------- --------- ---------
Total delinquencies and
amount in repossession (2)....... 3,001 $ 33,044 2,950 $ 29,024 3,313 $ 22,170
========= ========= ========= ========= ========= =========

Delinquencies as a percentage
of gross servicing portfolio..... 3.6% 3.3% 4.7% 3.8% 6.2% 4.0%

Total delinquencies and
amount in repossession as a
percentage of gross servicing
portfolio........................ 5.1% 4.7% 6.2% 5.3% 7.7% 5.6%

Extension Experience
Contracts with One Extension (4).... 6,226 $ 68,156 4,500 $ 52,997 5,742 $ 32,007
Contracts with Two or More
Extensions (4)................... 1,324 12,963 1,354 9,702 2,893 10,386
--------- --------- --------- --------- --------- ---------

Total Contracts with Extensions..... 7,550 $ 81,119 5,854 $ 62,699 8,635 $ 42,393
========= ========= ========= ========= ========= =========

MFN

December 31, 2004 December 31, 2003 December 31, 2002
----------------------- ----------------------- -----------------------
Number of Number of Number of
Contracts Amount Contracts Amount Contracts Amount
--------- --------- --------- --------- --------- ---------
Delinquency Experience (Dollars in thousands)
Gross servicing portfolio (1)....... 6,647 $ 18,255 20,282 $ 77,717 43,696 $221,674
Period of delinquency (2)
31-60 days.......................... 233 457 769 2,128 1,924 7,650
61-90 days.......................... 175 365 327 843 898 2,976
91+ days............................ 137 254 227 532 543 1,914
--------- --------- --------- --------- --------- ---------
Total delinquencies (2)............. 545 1,076 1,323 3,503 3,365 12,540
Amount in repossession (3).......... 111 475 369 1,899 748 4,530
--------- --------- --------- --------- --------- ---------
Total delinquencies and
amount in repossession (2)....... 656 $ 1,551 1,692 $ 5,402 4,113 $ 17,070
========= ========= ========= ========= ========= =========

Delinquencies as a percentage
of gross servicing portfolio..... 8.2% 5.9% 6.5% 4.5% 7.7% 5.7%

Total delinquencies and
amount in repossession as a
percentage of gross servicing
portfolio........................ 9.9% 8.5% 8.3% 7.0% 9.4% 7.7%

Extension Experience
Contracts with One Extension (4).... 1,530 $ 4,352 5,197 $ 21,560 10,542 $ 58,839
Contracts with Two or More
Extensions (4)................... 2,609 8,043 5,707 23,050 7,693 34,969
--------- --------- --------- --------- --------- ---------

Total Contracts with Extensions...... 4,139 $ 12,395 10,904 $ 44,610 18,235 $ 93,808
========= ========= ========= ========= ========= =========

TFC

December 31, 2004 December 31, 2003
----------------------- -----------------------
Number of Number of
Contracts Amount Contracts Amount
--------- --------- --------- ---------
Delinquency Experience (Dollars in thousands)

Gross servicing portfolio (1)....... 11,278 $107,635 16,963 $151,727
Period of delinquency (2)
31-60 days.......................... 342 2,589 562 4,088
61-90 days.......................... 226 1,375 356 2,380
91+ days............................ 409 2,225 902 5,815
--------- --------- --------- ---------
Total delinquencies (2)............. 977 6,189 1,820 12,283
Amount in repossession (3).......... 180 1,977 148 1,418
--------- --------- --------- ---------
Total delinquencies and
amount in repossession (2)....... 1,157 $ 8,166 1,968 $ 13,701
========= ========= ========= =========

Delinquencies as a percentage
of gross servicing portfolio..... 8.7% 5.8% 10.7% 8.1%

Total delinquencies and
amount in repossession as a
percentage of gross servicing
portfolio........................ 10.3% 7.6% 11.6% 9.0%

Extension Experience
Contracts with One Extension (4).... 446 $ 3,599 307 $ 2,061
Contracts with Two or More
Extensions (4)................... 114 446 286 1,472
--------- --------- --------- ---------

Total Contracts with Extensions.... 560 $ 4,045 593 $ 3,533
========= ========= ========= =========

SEAWEST ACQUIRED

December 31, 2004
-----------------------
Number of
Contracts Amount
--------- ---------
Delinquency Experience (Dollars in thousands)
Gross servicing portfolio (1)....... 5,969 $ 41,181
Period of delinquency (2)
31-60 days.......................... 229 1,418
61-90 days.......................... 148 881
91+ days............................ 342 2,140
--------- ---------
Total delinquencies (2)............. 719 4,439
Amount in repossession (3).......... 226 1,714
--------- ---------
Total delinquencies and
amount in repossession (2)....... 945 $ 6,153
========= =========

Delinquencies as a percentage
of gross servicing portfolio..... 12.1% 10.8%

Total delinquencies and
amount in repossession as a
percentage of gross servicing
portfolio........................ 15.8% 14.9%

Extension Experience
Contracts with One Extension (4).... 1,459 $ 10,031
Contracts with Two or More
Extensions (4)................... 336 2,208
--------- ---------

Total Contracts with Extensions..... 1,795 $ 12,239
========= =========

______________
(1) All amounts and percentages are based on the amount remaining to be repaid
on each Contract, including, for pre-computed Contracts, any unearned
interest. The information in the table represents the gross principal
amount of all Contracts purchased by the Company on an other than flow
basis, including Contracts subsequently sold by the Company in
securitization transactions that it continues to service. The table does
not include Contracts from the SeaWest Third Party Portfolio.
(2) The Company considers a Contract delinquent when an obligor fails to make
at least 90% of a contractually due payment by the following due date,
which date may have been extended within limits specified in the Servicing
Agreements. The period of delinquency is based on the number of days
payments are contractually past due. Contracts less than 31 days delinquent
are not included.
(3) Amount in repossession represents financed vehicles that have been
repossessed but not yet liquidated.
(4) The aging categories shown in the tables reflect the impact of extensions.

EXTENSIONS

The Company may offer a customer an extension, under which the customer and the
Company agree to move past due payments to the end of the Contract term. In such
cases the customer must sign an agreement for the extension, and may pay a fee
representing partial payment of accrued interest. The Company's policies, and
its contractual arrangements for its warehouse and securitization transactions,
limit the number of extensions that may be granted. In general, a customer may
arrange for an extension no more than once every 12 months, not to exceed three
extensions over the life of the Contract.

If a customer is granted such an extension, the date next due is advanced and
the Contract is classified as current for delinquency aging purposes. Subsequent
delinquency aging classifications would be based on the future payment
performance of the Contract.

NET CHARGE-OFF EXPERIENCE (1)

CPS, MFN, TFC AND SEAWEST COMBINED

Year Ended December 31,
------------------------------------------
2004 2003 2002
------------ ------------ ------------
(Dollars in thousands)

Average servicing portfolio outstanding.......... $ 796,436 $ 674,523 $ 524,286
Net charge-offs as a percentage of average
servicing portfolio (2)........................ 7.8% 6.8% 8.6%

CPS

Year Ended December 31,
------------------------------------------
2004 2003 2002
------------ ------------ ------------
(Dollars in thousands)

Average servicing portfolio outstanding.......... $ 623,639 $ 483,647 $ 291,863
Net charge-offs as a percentage of average
servicing portfolio (2)........................ 5.7% 4.7% 5.0%

MFN

Year Ended December 31,
------------------------------------------
2004 2003 2002
------------ ------------ ------------
(Dollars in thousands)
Average servicing portfolio outstanding.......... $ 38,569 $ 123,140 $ 278,908
Net charge-offs as a percentage of average
servicing portfolio (2).......................... (0.5)% 12.6% 11.0%

TFC

Year Ended December 31,
---------------------------
2004 2003
------------ ------------
(Dollars in thousands)
Average servicing portfolio outstanding.......... $ 102,467 $ 133,428
Net charge-offs as a percentage of average
servicing portfolio (2) (3).................... 11.9% 11.3%

SEAWEST ACQUIRED (4)

March 1, through December 31,
-----------------------------
2004
-----------------------------
(Dollars in thousands)
Average servicing portfolio outstanding.......... $ 54,040
Net charge-offs as a percentage of average
servicing portfolio (2)........................ 37.4%
__________

(1) All amounts and percentages are based on the principal amount scheduled to
be paid on each Contract, net of unearned income on pre-computed Contracts.
The information in the table represents all Contracts serviced by the
Company (excluding Contracts from the SeaWest Third Party Portfolio).
(2) Net charge-offs include the remaining principal balance, after the
application of the net proceeds from the liquidation of the vehicle
(excluding accrued and unpaid interest) and amounts collected subsequent to
the date of charge-off.
(3) TFC Contracts are expected to charge off at rates greater than CPS. To
partially compensate for this higher risk, TFC Contracts are purchased with
a higher acquisition fee than CPS Contracts.
(4) Charge-off amounts are before consideration of the acquisition purchase
discount.

FLOW PURCHASE PROGRAM

From May 1999 through the second quarter of 2002, the Company purchased
Contracts primarily for immediate and outright resale to either of two
non-affiliated third parties. The Company sold such Contracts for a mark-up
above what the Company paid the Dealer. That markup represented the purchasers'
compensating the Company for services in selecting Contracts for purchase and
verifying customer credit information. In such sales, the Company made certain
representations and warranties to the purchasers, normal in the industry, which
related primarily to the legality of the sale of the underlying motor vehicle
and to the validity of the security interest that conveyed to the purchaser.
These representations and warranties were generally similar to the
representations and warranties given by the originating Dealer to the Company.
In the event of a breach of such representations or warranties, the Company
might incur liabilities in favor of the purchaser(s) of the Contracts and there
can be no assurance that the Company would be able to recover, in turn, against
the originating Dealer(s).

One of the two flow purchasers ceased to purchase Contracts in December 2001,
and the other ceased to purchase in May 2002. The flow purchase program
accordingly ended at that time. The Company does not expect to recommence a flow
purchase program.

SECURITIZATION OF CONTRACTS

The Company purchases Contracts for resale in or to be financed through
securitization transactions. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and Note 1 of Notes to Consolidated Financial Statements. During
2004, the Company funded such purchases primarily with proceeds from four
short-term revolving warehouse lines of credit. As of December 31, 2004, the
Company had $225 million in warehouse credit capacity, in the form of a $125
million facility and a $100 million facility. The first facility provides
funding for Contracts purchased under the TFC Programs while both warehouse
facilities provide funding for Contracts purchased under the CPS Programs. A
third facility in the amount of $75 million, which the Company utilized to fund
Contracts under the CPS Programs, expired on February 21, 2004. A fourth
facility in the amount of $25 million, which the Company utilized to fund
Contracts under the TFC Programs, expired on June 24, 2004. These facilities are
independent of each other. With the two currently existing facilities, two
different financial institutions purchase the notes issued by these facilities,
and two different insurers insure the notes (each a "Note Insurer"). The Note
Insurer on the $125 million facility is the controlling party whereas the lender
on the $100 million facility is the controlling party. Up to 73.5% of the
principal balance of Contracts may be advanced to the Company under these
facilities, subject to collateral tests and certain other conditions and
covenants. Long-term funding for the purchase of Contracts is achieved by the
Company through term securitization transactions, in which the liabilities (the
asset-backed securities) are repaid as the underlying Contracts amortize.
Proceeds from term securitization transactions are used primarily to repay the
warehouse facilities. The Company completed five term securitization
transactions in 2004 and four term securitization transactions in 2003.

In a securitization, the Company is required to make certain representations and
warranties, which are generally similar to the representations and warranties
made by Dealers in connection with the Company's purchase of the Contracts. If
the Company breaches any of its representations or warranties to a purchaser of
the Contracts, the Company will be obligated to repurchase the Contract from
such purchaser at a price equal to the principal balance plus accrued and unpaid
interest. The Company may then be entitled under the terms of its Dealer
Agreement to require the selling Dealer to repurchase the Contract at a price
equal to the Company's purchase price, less any principal payments made by the
customer. Subject to any recourse against Dealers, the Company will bear the
risk of loss on repossession and resale of vehicles under Contracts that it
repurchases.

Upon the sale or financing of a portfolio of Contracts in a securitization
transaction, generally utilizing a trust that is specifically created for such
purpose ("Trust"), the Company retains the obligation to service the Contracts,
and receives a monthly fee for doing so. Among other services performed, the
Company mails to obligors monthly billing statements directing them to mail
payments on the Contracts to a lockbox account. The Company engages an
independent lockbox processing agent to retrieve and process payments received
in the lockbox account. This results in a daily deposit to the Trust's bank
account of the entire amount of each day's lockbox receipts and the simultaneous
electronic data transfer to the Company of customer payment data records.
Pursuant to the Servicing Agreements, as defined below, the Company is required
to deliver monthly reports to the Trust reflecting all transaction activity with
respect to the Contracts. The reports contain, among other information, a
reconciliation of the change in the aggregate principal balance of the Contracts
in the portfolio to the amounts deposited into the Trust's bank account as
reflected in the daily reports of the lockbox processing agent.

In its securitization transactions, the Company generally warrants that, to the
best of the Company's knowledge, no such liens or claims are pending or
threatened with respect to a financed vehicle, that may be or become prior to or
equal with the lien of the related Contracts. In the event that any of the
Company's representations or warranties proves to be incorrect, the Trust would
be entitled to require the Company to repurchase the Contract relating to such
financed vehicle.

THE SERVICING AGREEMENTS

The Company currently services all Contracts that it owns, as well as those
Contracts included in portfolios that it has sold to securitization Trusts. The
Company does not service Contracts that were sold in its flow purchase program.
Pursuant to the Company's usual form of servicing agreement (the Company's
servicing agreements with purchasers of portfolios of Contracts are collectively
referred to as the "Servicing Agreements"), CPS is obligated to service all
Contracts sold to the Trusts in accordance with the Company's standard
procedures. The Servicing Agreements generally provide that the Company will
bear all costs and expenses incurred in connection with the management,
administration and collection of the Contracts serviced.

The Company is entitled under most of the Servicing Agreements to receive a base
monthly servicing fee between 2.5% and 5.0% per annum computed as a percentage
of the declining outstanding principal balance of the non-defaulted Contracts in
the pool. Each month, after payment of the Company's base monthly servicing fee
and certain other fees, the Trust receives the paid principal reduction of the
Contracts in its pool and interest thereon at the fixed rate that was agreed
when the Contracts were sold to the Trust. If, in any month, collections on the
Contracts are insufficient to pay such amounts and any principal reduction due
to charge-offs, the shortfall is satisfied from the Spread Account established
in connection with the sale of the pool. The "Spread Account" is an account
established at the time the Company sells a pool of Contracts, to provide
security to the Note Insurers, as defined below. If collections on the Contracts
exceed such amounts, the excess is utilized, first, to build up or replenish the
Spread Account or other credit enhancement to the extent required, next, in
certain cases to cover deficiencies in Spread Accounts for other pools, and the
balance, if any, constitutes excess cash flows, which are distributed to the
Company.

Pursuant to the Servicing Agreements, the Company is generally required to
charge off the balance of any Contract by the earlier of the end of the month in
which the Contract becomes five scheduled installments past due or, in the case
of repossessions, the month that the proceeds from the liquidation of the
financed vehicle are received by the Company or if the vehicle has been in
repossession inventory for more than 90 days. In the case of repossession, the
amount of the charge-off is the difference between the outstanding principal
balance of the defaulted Contract and the net repossession sale proceeds. In the
event collections on the Contracts are not sufficient to pay to the holders
("Investors") of interests in the Trust the entire principal balance of
Contracts charged off during the month, the trustee draws on the related Spread
Account to pay the Investors. The amount drawn would then have to be restored to
the Spread Account from future collections on the Contracts remaining in the
pool before the Company would again be entitled to receive excess cash. In
addition, the Company would not be entitled to receive any further monthly
servicing fees with respect to the defaulted Contracts. Subject to any recourse
against the Company in the event of a breach of the Company's representations
and warranties with respect to any Contracts and after any recourse to any
insurer guarantees backing the Notes, as defined below, the Investors bear the
risk of all charge-offs on the Contracts in excess of the Spread Account. The
Investors' rights with respect to distributions from the Trusts are senior to
the Company's rights. Accordingly, variation in performance of pools of
Contracts affects the Company's ultimate realization of value derived from such
Contracts.

The Servicing Agreements are terminable by the insurers of certain of the
Trust's obligations ("Note Insurers") in the event of certain defaults by the
Company and under certain other circumstances. Were a Note Insurer in the future
to exercise its option to terminate the Servicing Agreements, such a termination
would have a material adverse effect on the Company's liquidity and results of
operations. The Company continues to receive Servicer extensions on a monthly
and/or quarterly basis, pursuant to the Servicing Agreements.

COMPETITION

The automobile financing business is highly competitive. The Company competes
with a number of national, regional and local finance companies with operations
similar to those of the Company. In addition, competitors or potential
competitors include other types of financial services companies, such as
commercial banks, savings and loan associations, leasing companies, credit
unions providing retail loan financing and lease financing for new and used
vehicles, and captive finance companies affiliated with major automobile
manufacturers such as General Motors Acceptance Corporation, Ford Motor Credit
Corporation, Chrysler Finance Corporation and Nissan Motors Acceptance
Corporation. Many of the Company's competitors and potential competitors possess
substantially greater financial, marketing, technical, personnel and other
resources than the Company. Moreover, the Company's future profitability will be
directly related to the availability and cost of its capital in relation to the
availability and cost of capital to its competitors. The Company's competitors
and potential competitors include far larger, more established companies that
have access to capital markets for unsecured commercial paper and investment
grade-rated debt instruments and to other funding sources that may be
unavailable to the Company. Many of these companies also have long-standing
relationships with Dealers and may provide other financing to Dealers, including
floor plan financing for the Dealers' purchase of automobiles from
manufacturers, which is not offered by the Company.

The Company believes that the principal competitive factors affecting a Dealer's
decision to offer Contracts for sale to a particular financing source are the
purchase price offered for the Contracts, the reasonableness of the financing
source's underwriting guidelines and documentation requests, the predictability
and timeliness of purchases and the financial stability of the funding source.
The Company believes that it can obtain from Dealers sufficient Contracts for
purchase at attractive prices by consistently applying reasonable underwriting
criteria and making timely purchases of qualifying Contracts.

GOVERNMENT REGULATION

Several federal and state consumer protection laws, including the federal
Truth-In-Lending Act, the federal Equal Credit Opportunity Act, the federal Fair
Debt Collection Practices Act and the Federal Trade Commission Act, regulate the
extension of credit in consumer credit transactions. These laws mandate certain
disclosures with respect to finance charges on Contracts and impose certain
other restrictions on Dealers. In many states, a license is required to engage
in the business of purchasing Contracts from Dealers. In addition, laws in a
number of states impose limitations on the amount of finance charges that may be
charged by Dealers on credit sales. The so-called Lemon Laws enacted by various
states provide certain rights to purchasers with respect to motor vehicles that
fail to satisfy express warranties. The application of Lemon Laws or violation
of such other federal and state laws may give rise to a claim or defense of a
customer against a Dealer and its assignees, including the Company and
purchasers of Contracts from the Company. The Dealer Agreement contains
representations by the Dealer that, as of the date of assignment of Contracts,
no such claims or defenses have been asserted or threatened with respect to the
Contracts and that all requirements of such federal and state laws have been
complied with in all material respects. Although a Dealer would be obligated to
repurchase Contracts that involve a breach of such warranty, there can be no
assurance that the Dealer will have the financial resources to satisfy its
repurchase obligations to the Company. Certain of these laws also regulate the
Company's servicing activities, including its methods of collection.

Although the Company believes that it is currently in material compliance with
applicable statutes and regulations, there can be no assurance that the Company
will be able to maintain such compliance. The past or future failure to comply
with such statutes and regulations could have a material adverse effect upon the
Company. Furthermore, the adoption of additional statutes and regulations,
changes in the interpretation and enforcement of current statutes and
regulations or the expansion of the Company's business into jurisdictions that
have adopted more stringent regulatory requirements than those in which the
Company currently conducts business could have a material adverse effect upon
the Company. In addition, due to the consumer-oriented nature of the industry in
which the Company operates and the application of certain laws and regulations,
industry participants are regularly named as defendants in litigation involving
alleged violations of federal and state laws and regulations and consumer law
torts, including fraud. Many of these actions involve alleged violations of
consumer protection laws. A significant judgment against the Company or within
the industry in connection with any such litigation could have a material
adverse effect on the Company's financial condition, results of operations or
liquidity. See "Legal Proceedings."

EMPLOYEES

As of December 31, 2004, the Company had 758 full-time and 14 part-time
employees, of whom 7 are senior management personnel, 451 are collections
personnel, 124 are Contract origination personnel, 78 are marketing personnel
(63 of whom are marketing representatives), 67 are operations and systems
personnel, and 31 are administrative personnel. The Company believes that its
relations with its employees are good. The Company is not a party to any
collective bargaining agreement.

ITEM 2. PROPERTY

The Company's headquarters are located in Irvine, California, where it leases
approximately 115,000 square feet of general office space from an unaffiliated
lessor. The annual base rent was approximately $1.9 million through October
2003, and increased to $2.1 million for the following five years. In addition to
base rent, the Company pays the property taxes, maintenance and other expenses
of the premises.

In March 1997, the Company established a branch collection facility in
Chesapeake, Virginia. The Company leases approximately 28,000 square feet of
general office space in Chesapeake, Virginia, at a base rent that is currently
$465,720 per year, increasing to $501,542 over a 10-year term.

The remaining four regional servicing centers occupy a total of approximately
49,000 square feet of leased space in Orlando, Florida; Atlanta, Georgia;
Hinsdale, Illinois and Cleveland, Ohio. The termination dates of such leases
range from 2007 to 2008.

See Notes 2 and 14 of Notes to Consolidated Financial Statements.

ITEM 3. LEGAL PROCEEDINGS

STANWICH LITIGATION. CPS was a defendant in a class action (the "Stanwich Case")
brought in the California Superior Court, Los Angeles County. The original
plaintiffs in that case were persons entitled to receive regular payments (the
"Settlement Payments") under out-of-court settlements reached with third party
defendants. Stanwich Financial Services Corp. ("Stanwich"), an affiliate of the
former Chairman of the Board of Directors of CPS, is the entity that was
obligated to pay the Settlement Payments. Stanwich has defaulted on its payment
obligations to the plaintiffs and in June 2001 filed for reorganization under
the Bankruptcy Code, in the federal Bankruptcy Court of Connecticut. At
year-end, CPS was a defendant only in a cross-claim brought by one of the other
defendants in the case, Bankers Trust Company, which asserted a claim of
contractual indemnity against CPS.

Subsequent to year-end, CPS settled the cross-claim of Bankers Trust by payment
of $3.24 million, on or about February 8, 2005. Pursuant to that settlement, the
court has dismissed the cross-claim, with prejudice.

In November 2001, one of the defendants in the Stanwich Case, Jonathan Pardee,
asserted claims for indemnity against the Company in a separate action, which is
now pending in federal district court in Rhode Island. The Company has filed
counterclaims in the Rhode Island federal court against Mr. Pardee, and has
filed a separate action against Mr. Pardee's Rhode Island attorneys, in the same
court. The litigation between Mr. Pardee and CPS is stayed, awaiting resolution
of an adversary action brought against Mr. Pardee in the bankruptcy court, which
is hearing the bankruptcy of Stanwich.

The reader should consider that an adverse judgment against CPS in the Rhode
Island case for indemnification, if in an amount materially in excess of any
liability already recorded in respect thereof, could have a material adverse
effect.

OTHER LITIGATION. On November 15, 2000, Denice and Gary Lang filed a lawsuit
against CPS in South Carolina Common Pleas Court, Beaufort County, alleging that
they, and a purported nationwide class, were harmed by an alleged failure to
refer, in the notice given after repossession of their vehicle, to the right to
purchase the vehicle by tender of the full amount owed under the retail
installment contract. They sought damages in an unspecified amount. CPS filed a
counterclaim to recover any delinquent amounts owed by the members of the
putative class in the event that the class were to be certified. In February
2004, CPS reached an agreement to settle that case on a class basis for payment
of attorneys' fees and other immaterial consideration.

On June 2, 2004, Delmar Coleman filed a lawsuit in the circuit court of
Tuscaloosa, Alabama, making allegations similar to those that were asserted in
the Lang case, and seeking damages in an unspecified amount, on behalf of a
purported nationwide class. The Company removed the case to federal bankruptcy
court, and filed a motion for summary judgment as part of its adversary
proceeding against the plaintiff in the bankruptcy court. The federal bankruptcy
court granted the plaintiff's motion to send the matter back to Alabama state
court. The Company has appealed the ruling. Although the Company believes that
it has one or more defenses to each of the claims made in this lawsuit, no
discovery has yet been conducted and the case is in its earliest stages.
Accordingly, there can be no assurance as to its outcome.

In June 2004, Plaintiff Jeremy Henry filed a lawsuit against the Company in the
California Superior Court, San Diego County, alleging improper practices related
to the notice given after repossession of a vehicle that he purchased. The
lawsuit is styled a class action, though no motion for class certification has
yet been filed. CPS and its subsidiary have a number of defenses that may be
asserted with respect to the claims of plaintiff Henry.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT

Information regarding the Company's executive officers follows:

CHARLES E. BRADLEY, JR., 45, has been the President and a director of the
Company since its formation in March 1991. In January 1992, Mr. Bradley was
appointed Chief Executive Officer of the Company. From March 1991 until December
1995 he served as Vice President and a director of CPS Holdings, Inc. From April
1989 to November 1990, he served as Chief Operating Officer of Barnard and
Company, a private investment firm. From September 1987 to March 1989, Mr.
Bradley, Jr. was an associate of The Harding Group, a private investment banking
firm.

NICHOLAS P. BROCKMAN, 60, has been Senior Vice President - Collections since
January 1996. He was Senior Vice President of Contract Originations from April
1991 to January 1996. From 1986 to March 1991, Mr. Brockman served as a Vice
President and Branch Manager of Far Western Bank.

MARK A. CREATURA, 45, has been Senior Vice President - General Counsel since
October 1996. From October 1993 through October 1996, he was Vice President and
General Counsel at Urethane Technologies, Inc., a polyurethane chemicals
formulator. Mr. Creatura was previously engaged in the private practice of law
with the Los Angeles law firm of Troy & Gould Professional Corporation, from
October 1985 through October 1993.

JEFFREY P. FRITZ, 45, has been Senior Vice President - Accounting since August
2004. He served as a consultant to the Company from May 2004 to August 2004.
Previously, he was the Chief Financial Officer of SeaWest Financial Corp. from
February 2003 to May 2004, and the Chief Financial Officer of AFCO Auto Finance
from April 2002 to February 2003. He practiced public accounting with Glenn M.
Gelman & Associates from March 2001 to April 2002 and was Chief Financial
Officer of Credit Services Group, Inc. from May 1999 to November 2000. He
previously served as the Company's Chief Financial Officer from its inception
through May 1999.

CURTIS K. POWELL, 48, has been Senior Vice President - Contract Origination
since June 2001. Previously, he was the Company's Senior Vice President -
Marketing, from April 1995. He joined the Company in January 1993 as an
independent marketing representative until being appointed Regional Vice
President of Marketing for Southern California in November 1994. From June 1985
through January 1993, Mr. Powell was in the retail automobile sales and leasing
business.

ROBERT E. RIEDL, 41, has been Senior Vice President - Chief Financial Officer
since August 2003. Mr. Riedl joined the Company as Senior Vice President - Risk
Management in January 2003. Mr. Riedl was a Principal at Northwest Capital
Appreciation ("NCA"), a middle market private equity firm, from 2000 to 2002.
For a year prior to joining Northwest Capital, Mr. Riedl served as Senior Vice
President for one of NCA's portfolio companies, SLP Capital. Mr. Riedl was an
investment banker for ContiFinancial Services Corporation from 1995 until
joining SLP Capital in 1999.

CHRISTOPHER TERRY, 37, has been Senior Vice President - Asset Recovery since
January 2003. He joined the Company in January 1995 as a loan officer, held a
series of successively more responsible positions, and was promoted to Vice
President - Asset Recovery in June 1999. Mr. Terry was previously a branch
manager with Norwest Financial from 1990.

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The Company's Common Stock is traded on the Nasdaq National Market System, under
the symbol "CPSS." The following table sets forth the high and low sales prices
reported by Nasdaq for the Common Stock for the periods shown.

High Low
--------- ---------
January 1 - March 31, 2003........................... 2.200 1.500
April 1 - June 30, 2003.............................. 3.455 1.630
July 1 - September 30, 2003.......................... 3.700 2.480
October 1 - December 31, 2003........................ 4.180 2.750
January 1 - March 31, 2004........................... 3.960 2.940
April 1 - June 30, 2004.............................. 4.970 3.120
July 1 - September 30, 2004.......................... 5.210 3.710
October 1 - December 31, 2004........................ 4.870 3.980

As of March 16, 2005, there were 86 holders of record of the Company's Common
Stock. To date, the Company has not declared or paid any dividends on its Common
Stock. The payment of future dividends, if any, on the Company's Common Stock is
within the discretion of the Board of Directors and will depend upon the
Company's income, its capital requirements and financial condition, and other
relevant factors. The instruments governing the Company's outstanding debt place
certain restrictions on the payment of dividends. The Company does not intend to
declare any dividends on its Common Stock in the foreseeable future, but instead
intends to retain any cash flow for use in the Company's operations.

The table below presents information regarding outstanding options to purchase
the Company's Common Stock.

NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE EXERCISE FUTURE ISSUANCE UNDER EQUITY
BE ISSUED UPON EXERCISE PRICE OF OUTSTANDING COMPENSATION PLANS (EXCLUDING
OF OUTSTANDING OPTIONS, OPTIONS, WARRANTS AND SECURITIES REFLECTED IN
PLAN CATEGORY WARRANTS AND RIGHTS RIGHTS COLUMN (a))
- ---------------------------- --------------------------- --------------------------- -------------------------------
DECEMBER 31, 2004
(a) (b) (c)

Equity compensation plans
approved by security 4,052,049 $2.51 1,391,631
holders
- ---------------------------- --------------------------- --------------------------- -------------------------------
Equity compensation plans
not approved by security None N/A N/A
holders
- ---------------------------- --------------------------- --------------------------- -------------------------------
Total 4,052,049 $2.51 1,391,631
- ---------------------------- --------------------------- --------------------------- -------------------------------

During the year ended December 31, 2004, the Company purchased a total of 25,999
shares of its common stock, as described in the following table:

Issuer Purchases of Equity Securities

TOTAL NUMBER OF SHARES APPROXIMATE DOLLAR VALUE OF
TOTAL NUMBER AVERAGE PURCHASED AS PART OF SHARES THAT MAY YET BE
OF SHARES PRICE PAID PUBLICLY ANNOUNCED PLANS PURCHASED UNDER THE PLANS
PERIOD (1) PURCHASED PER SHARE OR PROGRAMS(2) OR PROGRAMS
- ---------------------------- -------------- ------------- ---------------------------- -----------------------------

May 2004 6,738 $3.75 6,738 1,577,863
November 2004 12,861 $4.39 12,861 1,521,411
December 2004 6,400 $4.50 6,400 1,492,604
- ---------------------------- -------------- ------------- ---------------------------- -----------------------------
Total 25,999 $4.25 25,999
- ---------------------------- -------------- ------------- ---------------------------- -----------------------------

(1) Each monthly period is the calendar month.

(2) The Company announced in August 2000 its intention to purchase up to $5
million of its outstanding securities, inclusive of annual $1 million sinking
fund redemptions on its Rising Interest Redeemable Subordinated Securities due
2006. In October 2002, the July 2000 program having been exhausted, the
Company's board of directors authorized the purchase of up to an additional $5
million of such securities, which program was first announced in the Company's
annual report for the year 2002, filed on March 26, 2003. All purchases
described in the table above were under the plan announced in March 2003, which
has no fixed expiration date.

On June 30, 2004, the Company issued 333,333 shares of its common stock to John
G. Poole, a director of the Company, upon conversion at maturity, and pursuant
to its terms, of a $1,000,000 note held by Mr. Poole since 1998. The issuance of
shares was exempt from registration under the Securities Act of 1933 pursuant to
Section 3(a)(9) thereof, as the shares were issued in exchange for the
outstanding note, and no commission was paid for soliciting such exchange.

ITEM 6. SELECTED FINANCIAL DATA

Year Ended December 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000(1)
--------- --------- --------- --------- ---------
(In thousands, except per share data)

Statement of Operations Data:
Net gain on sale of Contracts (2) .................. $ -- $ 10,421 $ 21,518 $ 32,765 $ 16,234
Interest income .................................... 105,818 58,164 48,644 17,205 3,480
Servicing fees ..................................... 12,480 17,058 14,621 10,666 15,848
Total revenue ...................................... 132,692 104,986 98,388 62,576 35,951
Operating expenses ................................. 148,580 108,025 98,326 62,256 68,354
Income (loss) before extraordinary item (3) ........ (15,888) 395 2,996 320 (22,147)
Extraordinary item (4) ............................. -- -- 17,412 -- --
Net income (loss) .................................. (15,888) 395 20,408 320 (22,147)
Basic income (loss) per share before ex. item ...... (0.75) 0.02 0.15 0.02 (1.10)
Diluted income (loss) per share before ex. item .... (0.75) 0.02 0.14 0.02 (1.10)
Basic income (loss) per share, ex. item ............ -- -- 0.87 -- --
Diluted income (loss) per share, ex. item .......... -- -- 0.83 -- --
Basic income (loss) per share ...................... (0.75) 0.02 1.03 0.02 (1.10)
Diluted income (loss) per share .................... (0.75) 0.02 0.97 0.02 (1.10)

Year Ended December 31,
------------------------------------------------------------------
2004 2003 2002 2001 2000
--------- --------- --------- --------- ---------
(In thousands)
Balance Sheet Data:
Cash and restricted cash............................ $ 139,479 $ 100,486 $ 51,859 $ 13,924 $ 24,315
Finance receivables, net............................ 550,191 266,189 84,592 -- 18,830
Residual interest in securitizations................ 50,430 111,702 127,170 106,103 99,199
Total assets........................................ 766,599 492,470 285,448 151,204 175,694
Term debt........................................... 675,548 384,622 175,942 82,555 102,614
Total liabilities................................... 696,679 410,310 202,874 89,518 113,572
Total shareholders' equity.......................... 69,920 82,160 82,574 61,686 62,122
___________

(1) During the year ended December 31, 2000, the Company did not sell any
Contracts in securitization transactions.
(2) The decrease in 2003 and 2004 is primarily the result of the change in
securitization structure implemented in the third quarter of 2003.
(3) Results for 2003 and 2002 include a tax benefit of $3.4 million and $2.9
million, respectively.
(4) On March 8, 2002, CPS acquired 100% of MFN Financial Corporation and
subsidiaries, resulting in the recognition of $17.4 million of negative
goodwill as an extraordinary gain, which is reflected in the Company's 2002
Consolidated Statement of Operations.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following analysis of the financial condition of the Company should be read
in conjunction with "Selected Financial Data" and the Company's Consolidated
Financial Statements and the Notes thereto and the other financial data included
elsewhere in this report. The Company's Consolidated Balance Sheet and
Consolidated Statement of Operations as of and for the years ended December 31,
2004 and 2003 include the results of operations of TFC Enterprises, Inc. for the
period subsequent to May 20, 2003, the TFC Merger date, through December 31,
2004. The Company's Consolidated Balance Sheet and Consolidated Statement of
Operations as of and for the years ended December 31, 2004, 2003 and 2002
include the results of operations of MFN Financial Corporation for the period
subsequent to March 8, 2002, the MFN Merger date, through December 31, 2002. See
Note 2 of Notes to Consolidated Financial Statements.

OVERVIEW

Consumer Portfolio Services, Inc. ("CPS," and together with its subsidiaries,
the "Company") is a consumer finance company which specializes in purchasing,
selling and servicing retail automobile installment purchase contracts
("Contracts") originated by licensed motor vehicle dealers ("Dealers") in the
sale of new and used automobiles, light trucks and passenger vans. Through its
purchases, the Company provides indirect financing to Dealer customers for
borrowers with limited credit histories, low incomes or past credit problems
("Sub-Prime Customers"). The Company serves as an alternative source of
financing for Dealers, allowing sales to customers who otherwise might not be
able to obtain financing. The Company does not lend money directly to consumers.
Rather, it purchases installment Contracts from Dealers based on its financing
programs (the "CPS Programs").

On March 8, 2002, the Company acquired MFN Financial Corporation and its
subsidiaries in a merger (the "MFN Merger"). On May 20, 2003, the Company
acquired TFC Enterprises, Inc. and its subsidiaries in a second merger (the "TFC
Merger"). Each merger was accounted for as a purchase. MFN Financial Corporation
and its subsidiaries ("MFN") and TFC Enterprises, Inc. and its subsidiaries
("TFC") were engaged in businesses similar to that of the Company: buying
Contracts from Dealers, repackaging those Contracts in securitization
transactions, and servicing those Contracts. MFN ceased acquiring Contracts in
May 2002; TFC continues to acquire Contracts under its "TFC Programs," which
provide financing for vehicle purchases exclusively by members of the United
States Armed Forces.

On April 2, 2004, the Company purchased (in the "SeaWest Asset Acquisition") a
portfolio of Contracts and certain other assets from SeaWest Financial
Corporation and its subsidiaries (collectively, "SeaWest"). In addition, the
Company was named the successor servicer of three term securitization
transactions originally sponsored by SeaWest (the "SeaWest Third Party
Portfolio"). The Company does not intend to offer financing programs similar to
those previously offered by SeaWest.

The Company historically has generated revenue primarily from the gains
recognized on the sale or securitization of Contracts, servicing fees earned on
Contracts sold, interest earned on Residuals, as defined below, and interest on
finance receivables. During the years ended December 31, 2002 and 2001, the
Company sold some Contracts on a servicing released basis, as part of a program
(the "flow purchase program") in which the Company sold Contracts to
unaffiliated third parties immediately after purchasing such Contracts from
Dealers. The flow purchase program ended in May 2002. During the years ended
December 31, 2002 and 2001, the Company's gain on sale of Contracts included
$5.7 million and $16.6 million, respectively, representing mark-up on Contracts
sold in the flow purchase program.

SECURITIZATION

GENERALLY

Throughout the periods for which information is presented in this report, the
Company has purchased Contracts with the intention of repackaging them in
securitizations. All such securitizations have involved identification of
specific Contracts, sale of those Contracts (and associated rights) to a special
purpose subsidiary of the Company, and issuance of asset-backed securities to
fund the transactions. Depending on the structure of the securitization, the
transaction may properly be accounted for as a sale of the Contracts, or as a
secured financing.

When structured to be treated as a secured financing, the subsidiary is
consolidated with the Company. Accordingly, the sold Contracts and the related
securitization trust debt appear as assets and liabilities, respectively, of the
Company on its Consolidated Balance Sheet. The Company then periodically (i)
recognizes interest and fee income on the receivables (ii) recognizes interest
expense on the securities issued in the securitization, and (iii) records as
expense a provision for credit losses on the receivables.

When structured to be treated as a sale, the subsidiary is not consolidated with
the Company. Accordingly, the securitization removes the sold Contracts from the
Company's Consolidated Balance Sheet, the asset-backed securities (debt of the
non-consolidated subsidiary) do not appear as debt of the Company, and the
Company shows, as an asset, a retained residual interest in the sold Contracts.
The residual interest represents the discounted value of what the Company
expects will be the excess of future collections on the Contracts over principal
and interest due on the asset-backed securities. That residual interest appears
on the Company's Consolidated Balance Sheet as "Residual interest in
securitizations," and the determination of its value is dependent on estimates
of the future performance of the sold Contracts.

CHANGE IN POLICY

In August 2003, the Company announced that it would structure its future
securitization transactions related to Contracts purchased under the CPS
Programs to be reflected as secured financings for financial accounting
purposes. Its six subsequent term securitizations of such finance receivables
have been so structured. Prior to August 2003, the Company had structured its
term securitization transactions related to the CPS Programs to be treated as
sales for financial accounting purposes. In the MFN Merger and in the TFC Merger
the Company acquired finance receivables that had been previously securitized in
term securitization transactions that were reflected as secured financings. As
of December 31, 2004, the Company's Consolidated Balance Sheet included net
finance receivables of approximately $40.8 million and securitization trust debt
of $32.8 million related to finance receivables acquired in the two mergers, out
of totals of net finance receivables of approximately $550.2 million and
securitization trust debt of approximately $542.8 million.

CREDIT RISK RETAINED

CRITICAL ACCOUNTING POLICIES

The Company believes that its accounting policies related to (a) Allowance for
Finance Credit Losses, (b) Residual Interest in Securitizations and Gain on Sale
of Contracts and (c) Income Taxes could be considered critical. Such policies
are described below.

(a) ALLOWANCE FOR FINANCE CREDIT LOSSES

In order to estimate an appropriate allowance for losses to be incurred on
finance receivables, the Company uses a loss allowance methodology commonly
referred to as "static pooling," which stratifies its finance receivable
portfolio into separately identified pools. Using analytical and formula driven
techniques, the Company estimates an allowance for finance credit losses, which
management believes is adequate for probable credit losses that can be
reasonably estimated in its portfolio of finance receivable Contracts. Provision
for loss is charged to the Company's Consolidated Statement of Operations. Net
losses incurred on finance receivables are charged to the allowance. Management
evaluates the adequacy of the allowance by examining current delinquencies, the
characteristics of the portfolio and the value of the underlying collateral. As
conditions change, the Company's level of provisioning and/or allowance may
change as well.

(b) TREATMENT OF SECURITIZATIONS

Gain on sale may be recognized on the disposition of Contracts either outright
or in securitization transactions. In those securitization transactions that
were treated as sales for financial accounting purposes, the Company, or a
wholly-owned, consolidated subsidiary of the Company, retains a residual
interest in the Contracts that were sold to a wholly-owned, unconsolidated
special purpose subsidiary. The Company's securitization transactions include
"term" securitizations (the purchaser holds the Contracts for substantially
their entire term) and "continuous" or "warehouse" securitizations (which
finance the acquisition of the Contracts for future sale into term
securitizations).

As of December 31, 2004 and 2003 the line item "Residual interest in
securitizations" on the Company's Consolidated Balance Sheet represents the
residual interests in certain term securitizations that were accounted for as
sales. Warehouse securitizations accounted for as secured financings are
accordingly reflected in the line items "Finance receivables" and "Warehouse
lines of credit" on the Company's Consolidated Balance Sheet, and the term
securitizations accounted for as secured financings are reflected in the line
items "Finance receivables" and "Securitization trust debt." The "Residual
interest in securitizations" represents the discounted sum of expected future
releases from securitization trusts. Accordingly, the valuation of the residual
is heavily dependent on estimates of future performance.

The key economic assumptions used in measuring all residual interests in
securitizations as of December 31, 2004 and 2003 are included in the table
below. The Company has used an effective pre-tax discount rate of 14% per annum
except for certain collections from charged off receivables related to the
Company's securitizations in 2001 and later, where the Company has used a
discount rate of 25% per annum.

2004 2003
---------------- ----------------
Prepayment speed (Cumulative)............ 20.0% - 30.5% 18.1% - 22.1%
Net credit losses (Cumulative)........... 13.0% - 20.5% 11.8% - 18.0%

Key economic assumptions and the sensitivity of the current fair value of
residual cash flows to immediate 10% and 20% adverse changes in those
assumptions are as follows:

December 31,
------------------------
2004
------------------------
(Dollars in thousands)

Carrying amount/fair value of residual interest in securitizations... $ 50,430
Weighted average life in years....................................... 2.95

Prepayment Speed Assumption (Cumulative)............................. 20.0% - 30.5%
Estimated fair value assuming 10% adverse change..................... $ 50,199
Estimated fair value assuming 20% adverse change..................... 49,951

Expected Net Credit Losses (Cumulative).............................. 13.0% - 20.5%
Estimated fair value assuming 10% adverse change..................... $ 48,764
Estimated fair value assuming 20% adverse change..................... 47,268

Residual Cash Flows Discount Rate (Annual)........................... 14.0% - 25.0%
Estimated fair value assuming 10% adverse change..................... $ 49,320
Estimated fair value assuming 20% adverse change..................... 48,230

These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on 10% and 20% percent variation
in assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear. Also, in
this table, the effect of a variation in a particular assumption on the fair
value of the retained interest is calculated without changing any other
assumption; in reality, changes in one factor may result in changes in another
(for example, increases in market rates may result in lower prepayments and
increased credit losses), which could magnify or counteract the sensitivities.

The Company's securitization structure has generally been as follows:

The Company sells Contracts it acquires to a wholly-owned Special Purpose
Subsidiary ("SPS"), which has been established for the limited purpose of buying
and reselling the Company's Contracts. The SPS then transfers the same Contracts
to another entity, typically a statutory trust ("Trust"). The Trust issues
interest-bearing asset-backed securities ("Notes"), in a principal amount equal
to or less than the aggregate principal balance of the Contracts. The Company
typically sells these Contracts to the Trust at face value and without recourse,
except that representations and warranties similar to those provided by the
Dealer to the Company are provided by the Company to the Trust. One or more
investors purchase the Notes issued by the Trust; the proceeds from the sale of
the Notes are then used to purchase the Contracts from the Company. The Company
may retain or sell subordinated Notes issued by the Trust or by a related
entity. The Company purchases a financial guaranty insurance policy,
guaranteeing timely payment of principal and interest on the senior Notes, from
an insurance company (a "Note Insurer"). In addition, the Company provides
"Credit Enhancement" for the benefit of the Note Insurer and the investors in
the form of an initial cash deposit to a bank account ("Spread Account") held by
the Trust, in the form of overcollateralization of the Notes, where the
principal balance of the Notes issued is less than the principal balance of the
Contracts, in the form of subordinated Notes, or some combination of such Credit
Enhancements. The agreements governing the securitization transactions
(collectively referred to as the "Securitization Agreements") require that the
initial level of Credit Enhancement be supplemented by a portion of collections
from the Contracts until the level of Credit Enhancement reaches specified
levels which are then maintained. The specified levels are generally computed as
a percentage of the principal amount remaining unpaid under the related
Contracts. The specified levels at which the Credit Enhancement is to be
maintained will vary depending on the performance of the portfolios of Contracts
held by the Trusts and on other conditions, and may also be varied by agreement
among the Company, the SPS, the Note Insurers and the trustee. Such levels have
increased and decreased from time to time based on performance of the various
portfolios, and have also varied by Securitization Agreement. The Securitization
Agreements generally grant the Company the option to repurchase the sold
Contracts from the Trust when the aggregate outstanding balance of the Contracts
has amortized to a specified percentage of the initial aggregate balance.

The prior securitizations that were treated as sales for financial accounting
purposes differ from secured financings in that the Trust to which the SPS sold
the Contracts met the definition of a "qualified special purpose entity" under
Statement of Financial Accounting Standards No. 140 ("SFAS 140"). As a result,
assets and liabilities of the Trust are not consolidated into the Company's
Consolidated Balance Sheet.

The Company's warehouse securitization structures were similar to the above,
except that (i) the SPS that purchases the Contracts pledges the Contracts to
secure promissory notes which it issues, (ii) the promissory notes are in an
aggregate principal amount of not more than 73.0% to 73.5% of the aggregate
principal balance of the Contracts (that is, at least 26.5%
overcollateralization), and (iii) no increase in the required amount of Credit
Enhancement is contemplated unless certain portfolio performance tests are
breached. During the quarter ended September 30, 2003 the warehouse
securitizations related to the CPS Programs were amended to cause the
transactions to be treated as secured financings for financial accounting
purposes. The Contracts held by the warehouse SPSs and the promissory notes that
they issue are therefore included in the Company's Consolidated Financial
Statements as of December 31, 2004 and 2003 as assets and liabilities,
respectively.

Upon each sale of Contracts in a securitization structured as a secured
financing, whether a term securitization or a warehouse securitization, the
Company retains on its Consolidated Balance Sheet the Contracts securitized as
assets and records the Notes issued in the transaction as indebtedness of the
Company.

Under the prior securitizations structured as sales for financial accounting
purposes, the Company removed from its Consolidated Balance Sheet the Contracts
sold and added to its Consolidated Balance Sheet (i) the cash received, if any,
and (ii) the estimated fair value of the ownership interest that the Company
retains in Contracts sold in the securitization. That retained or residual
interest (the "Residual") consists of (a) the cash held in the Spread Account,
if any, (b) overcollateralization, if any, (c) subordinated Notes retained, if
any, and (d) receivables from Trust, which include the net interest receivables
("NIRs"). NIRs represent the estimated discounted cash flows to be received from
the Trust in the future, net of principal and interest payable with respect to
the Notes, and certain expenses. The excess of the cash received and the assets
retained by the Company over the carrying value of the Contracts sold, less
transaction costs, equals the net gain on sale of Contracts recorded by the
Company. Until the maturity of these transactions, the Company's Consolidated
Balance Sheet will reflect both securitization transactions structured as sales
and others structured as secured financings.

With respect to securitizations structured as sales for financial accounting
purposes, the Company allocates its basis in the Contracts between the Notes
sold and the Residuals retained based on the relative fair values of those
portions on the date of the sale. The Company recognizes gains or losses
attributable to the change in the fair value of the Residuals, which are
recorded at estimated fair value. The Company is not aware of an active market
for the purchase or sale of interests such as the Residuals; accordingly, the
Company determines the estimated fair value of the Residuals by discounting the
amount of anticipated cash flows that it estimates will be released to the
Company in the future (the cash out method), using a discount rate that the
Company believes is appropriate for the risks involved. The anticipated cash
flows include collections from both current and charged off receivables. The
Company has used an effective pre-tax discount rate of 14% per annum except for
certain collections from charged off receivables related to the Company's
securitizations in 2001 and later where the Company has used a discount rate of
25% per annum

The Company receives periodic base servicing fees for the servicing and
collection of the Contracts. In addition, the Company is entitled to the cash
flows from the Trusts that represent collections on the Contracts in excess of
the amounts required to pay principal and interest on the Notes, the base
servicing fees, and certain other fees (such as trustee and custodial fees).
Required principal payments on the notes are generally defined as the payments
sufficient to keep the principal balance of the Notes equal to the aggregate
principal balance of the related Contracts (excluding those Contracts that have
been charged off), or a pre-determined percentage of such balance. Where that
percentage is less than 100%, the related Securitization Agreements require
accelerated payment of principal until the principal balance of the Notes is
reduced to the specified percentage. Such accelerated principal payment is said
to create overcollateralization of the Notes.

If the amount of cash required for payment of fees, interest and principal
exceeds the amount collected during the collection period, the shortfall is
withdrawn from the Spread Account, if any. If the cash collected during the
period exceeds the amount necessary for the above allocations, and there is no
shortfall in the related Spread Account or other form of Credit Enhancement, the
excess is released to the Company, or in certain cases is transferred to other
Spread Accounts related to transactions insured by the same Note Insurer that
may be below their required levels. If the total Credit Enhancement amount is
not at the required level, then the excess cash collected is retained in the
Trust until the specified level is achieved. Although Spread Account balances
are held by the Trusts on behalf of the Company's SPS as the owner of the
Residuals (in the case of securitization transactions structured as sales for
financial accounting purposes) or the Trusts (in the case of securitization
transactions structured as secured financings for financial accounting
purposes), the cash in the Spread Accounts is restricted from use by the
Company. Cash held in the various Spread Accounts is invested in high quality,
liquid investment securities, as specified in the Securitization Agreements. The
interest rate payable on the Contracts is significantly greater than the
interest rate on the Notes. As a result, the Residuals described above are a
significant asset of the Company. In determining the value of the Residuals, the
Company must estimate the future rates of prepayments, delinquencies, defaults,
default loss severity, and recovery rates, as all of these factors affect the
amount and timing of the estimated cash flows. The Company estimates prepayments
by evaluating historical prepayment performance of comparable Contracts. As of
December 31, 2004, the Company used prepayment estimates of approximately 20.0%
to 30.5% cumulatively over the lives of the related Contracts. The Company
estimates defaults and default loss severity using available historical loss
data for comparable Contracts and the specific characteristics of the Contracts
purchased by the Company. The Company estimates recovery rates of previously
charged off receivables using available historical recovery data. In valuing the
Residuals as of December 31, 2004, the Company estimates that charge-offs as a
percentage of the original principal balance will approximate 17.2% to 26.3%
cumulatively over the lives of the related Contracts, with recovery rates
approximating 3.2% to 5.8% of the original principal balance.

Following a securitization that is structured as a sale for financial accounting
purposes, interest income is recognized on the balance of the Residuals at the
same rate as used for calculating the present value of the NIRs, which is 14%
per annum. In addition, the Company will recognize as a gain additional revenue
from the Residuals if the actual performance of the Contracts is better than the
Company's estimate of the value of the residual. If the actual performance of
the Contracts were worse than the Company's estimate, then a downward adjustment
to the carrying value of the Residuals and a related impairment charge would be
required. In a securitization structured as a secured financing for financial
accounting purposes, interest income is recognized when accrued under the terms
of the related Contracts and, therefore, presents less potential for
fluctuations in performance when compared to the approach used in a transaction
structured as a sale for financial accounting purposes.

In all the Company's term securitizations, whether treated as secured financings
or as sales, the Company has sold the receivables (through a subsidiary) to the
securitization Trust. The difference between the two structures is that in
securitizations that are treated as secured financings the Company reports the
assets and liabilities of the securitization Trust on its Consolidated Balance
Sheet. Under both structures the Noteholders and the related securitization
Trusts have no recourse to the Company for failure of the Contract obligors to
make payments on a timely basis. The Company's Residuals, however, are
subordinate to the Notes until the Noteholders are fully paid, and the Company
is therefore at risk to that extent.

The Company and its subsidiaries file a consolidated federal income and combined
state franchise tax returns. The Company utilizes the asset and liability method
of accounting for income taxes, under which deferred income taxes are recognized
for the future tax consequences attributable to the differences between the
financial statement values of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. The Company has estimated a valuation
allowance against that portion of the deferred tax asset whose utilization in
future periods is not more than likely.

In determining the possible realization of deferred tax assets, future taxable
income from the following sources are considered: (a) the reversal of taxable
temporary differences; (b) future operations exclusive of reversing temporary
differences; and (c) tax planning strategies that, if necessary, would be
implemented to accelerate taxable income into periods in which net operating
losses might otherwise expire.

See "Liquidity and Capital Resources" and Note 1 of Notes to Consolidated
Financial Statements.

RESULTS OF OPERATIONS

ACQUISITIONS

The Company's Consolidated Balance Sheet and Consolidated Statement of
Operations as of and for the years ended December 31, 2004, 2003 and 2002
include the results of operations of MFN Financial Corporation for the period
subsequent to March 8, 2002, the date on which the Company acquired that
corporation and its subsidiaries in the MFN Merger. See Note 2 of Notes to
Consolidated Financial Statements, Acquisition of MFN Financial Corporation.

The Company's Consolidated Balance Sheet and Consolidated Statement of
Operations as of and for the year ended December 31, 2004 and 2003 include the
results of operations of TFC Enterprises, Inc. for the period subsequent to May
20, 2003, the date on which the Company acquired that corporation and its
subsidiaries in the TFC Merger. See Note 2 of Notes to Consolidated Financial
Statements, Acquisition of TFC Enterprises, Inc.

EFFECTS OF CHANGE IN SECURITIZATION STRUCTURE

The Company's decision in the third quarter of 2003 to structure securitization
transactions as borrowings secured by receivables for financial accounting
purposes, rather than as sales of receivables, has affected and will affect the
way in which the transactions are reported. The major effects are these: (i) the
finance receivables are shown as assets of the Company on its balance sheet;
(ii) the debt issued in the transactions is shown as indebtedness of the
Company; (iii) cash deposited to enhance the credit of the securitization
transactions ("Spread Accounts") is shown as "Restricted cash" on the Company's
balance sheet; (iv) cash collected from borrowers and other sources related to
the receivables prior to making the required payments under the Securitization
Agreements is also shown as "Restricted cash" on the Company's balance sheet;
(v) the servicing fee that the Company receives in connection with such
receivables is recorded as a portion of the interest earned on such receivables
in the Company's statements of operations; (vi) the Company has initially and
periodically recorded as expense a provision for estimated credit losses on the
receivables in the Company's statements of operations; and (vii) of scheduled
payments on the receivables and on the debt issued in the transactions, the
portion representing interest is recorded as interest income and expense,
respectively, in the Company's statements of operations.

These changes collectively represent a deferral of revenue and acceleration of
expenses, and thus a more conservative approach to accounting for the Company's
operations compared to the previous term securitization transactions, which were
accounted for as sales at the consummation of the transaction. The changes have
resulted in the Company's reporting lower earnings than it would have reported
if it had continued to structure its securitizations to require recognition of
gain on sale. As a result, reported earnings have been less than they would have
been had the Company continued to structure its securitizations to record a gain
on sale. It should also be noted that growth in the Company's portfolio of
receivables in excess of current expectations would result in an increase in
expenses in the form of provision for credit losses, and would initially have a
negative effect on net earnings. The Company's cash availability and cash
requirements should be unaffected by the change in structure.

The Company has conducted six term securitizations of Contracts originated under
the CPS Programs structured as secured financings. These securitizations were
completed in the following periods: September 2003, December 2003, May 2004,
August 2004, September 2004 and December 2004. In March 2004, the Company
completed a securitization of its retained interest in eight securitization
transactions previously sponsored by the Company and its affiliates, which was
also structured as a secured financing. In addition, in June 2004, the Company
completed a term securitization of Contracts purchased in the SeaWest Asset
Acquisition and under the TFC Programs, which was structured as a secured
financing. The Company's MFN and TFC subsidiaries completed term securitizations
structured as secured financings prior to their becoming subsidiaries of the
Company.

THE YEAR ENDED DECEMBER 31, 2004 COMPARED TO THE YEAR ENDED DECEMBER 31, 2003

REVENUES. During the year ended December 31, 2004, revenues were $132.7 million,
an increase of $27.7 million, or 26.4%, from the prior year revenue of $105.0
million. The primary reason for the increase in revenues is an increase in
interest income. Interest income for the year ended December 31, 2004 increased
$47.7 million, or 81.9%, to $105.8 million in 2004 from $58.2 million in 2003.
The primary reasons for the increase in interest income are the change in
securitization structure implemented during the third quarter of 2003 as
described above (an increase of $56.0 million) and the interest income earned on
the portfolios of Contracts acquired in the TFC Merger (an increase of $7.2
million) and the SeaWest Asset Acquisition (an increase of $6.1 million). This
increase was partially offset by the decline in the balance of the portfolio of
Contracts acquired in the MFN Merger (resulting in a decrease of $10.1 million
in interest income) and a decrease in residual interest income (a decrease of
$11.6 million).

The increase in interest income is offset in part by the elimination of net gain
on sale of Contracts revenue and a decrease in servicing fees. As a result of
the change in securitization structure, zero net gain on sale of Contracts was
recorded in 2004, compared to $10.4 million net gain on sale in the year earlier
period.

Servicing fees totaling $12.5 million in the year ended December 31, 2004
decreased $4.6 million, or 26.8%, from $17.1 million in the same period a year
earlier. The decrease in servicing fees is the result of the change in
securitization structure and the consequent decline in the Company's managed
portfolio held by non-consolidated subsidiaries. The decrease was partially
offset by the servicing fees earned on the SeaWest Third Party Portfolio, which
totaled $2.0 million. As a result of the decision to structure future
securitizations as secured financings, the Company's managed portfolio held by
non-consolidated subsidiaries will continue to decline in future periods, and
servicing fee revenue is anticipated to decline proportionately. As of December
31, 2004 and 2003, the Company's managed portfolio owned by consolidated vs.
non-consolidated subsidiaries and other third parties was as follows:

December 31, 2004 December 31, 2003
--------------------------- ---------------------------
Amount % Amount %
------------ ------------ ------------ ------------

Total Managed Portfolio ($ in millions)
Owned by Consolidated Subsidiaries........ $ 619.8 68.3% $ 315.6 42.6%
Owned by Non-Consolidated Subsidiaries.... 233.6 25.8% 425.5 57.4%
SeaWest Third Party Portfolio............. 53.5 5.9% -- 0.0%
------------ ------------ ------------ ------------

Total..................................... $ 906.9 100.0% $ 741.1 100.0%
============ ============ ============ =============

At December 31, 2004, the Company was generating income and fees on a managed
portfolio with an outstanding principal balance approximating $906.9 million
(this amount includes $53.5 million related to the SeaWest Third Party Portfolio
on which the Company earns only servicing fees), compared to a managed portfolio
with an outstanding principal balance approximating $741.1 million as of
December 31, 2003. As the portfolios of Contracts acquired in the MFN Merger and
the TFC Merger decrease, the portfolio of Contracts originated under the CPS
Programs continues to expand. At December 31, 2004 and 2003, the managed
portfolio composition was as follows:

December 31, 2004 December 31, 2003
--------------------------- ---------------------------
Amount % Amount %
------------ ------------ ------------ ------------

Originating Entity ($ in millions)
CPS....................................... $ 706.8 77.9% $ 543.8 73.4%
TFC....................................... 89.4 9.9% 123.6 16.7%
MFN....................................... 17.8 2.0% 73.7 9.9%
SeaWest................................... 39.4 4.3% -- 0.0%
SeaWest Third Party Portfolio............. 53.5 5.9% -- 0.0%
------------ ------------ ------------ ------------

Total..................................... $ 906.9 100.0% $ 741.1 100.0%
============ ============ ============ ============

Other income decreased $4.9 million, or 25.6%, to $14.4 million during 2004 from
$19.3 million during 2003. The period over period decrease resulted primarily
from a sales tax refund of $3.0 received in 2003 and decreased recoveries on
previously charged off MFN Contracts, which were $8.0 million during 2004,
compared to $12.2 million for 2003.

Expenses. The Company's operating expenses consist primarily of employee costs
and other operating expenses, which are incurred as applications and Contracts
are received, processed and serviced. Factors that affect margins and net income
include changes in the automobile and automobile finance market environments,
and macroeconomic factors such as interest rates and the unemployment level.

Employee costs include base salaries, commissions and bonuses paid to employees,
and certain expenses related to the accounting treatment of outstanding warrants
and stock options, and are one of the Company's most significant operating
expenses. These costs (other than those relating to stock options) generally
fluctuate with the level of applications and Contracts processed and serviced.

Other operating expenses consist primarily of interest expense, provisions for
credit losses, facilities expenses, telephone and other communication services,
credit services, computer services (including employee costs associated with
information technology support), professional services, marketing and
advertising expenses, and depreciation and amortization.

Total operating expenses were $148.6 million for 2004, compared to $108.0
million for 2003. The increase is primarily due to a $21.2 million increase in
the provision for credit losses to $32.6 million during the 2004 period as
compared to $11.4 million in the 2003 period. Increased interest expense was
also significant.

Employee costs increased to $38.2 million during 2004, representing 25.7% of
total operating expenses, from $37.1 million for 2003, or 34.4% of total
operating expenses. The slight increase is primarily the result of staff
additions related to increased Contract purchases in 2004 (an increase of $3.9
million). This increase was partially offset by staff reductions since the MFN
Merger in 2002 related to the integration and consolidation of certain service
and administrative activities and the decline in the balance of the portfolio of
Contracts acquired in the MFN Merger (a decrease of $3.2 million). The decrease
as a percentage of total operating expenses reflects the higher total of
operating expenses, primarily a result of the increased provision for credit
losses and interest expense.

General and administrative expenses remained essentially unchanged at $21.3
million, or 14.3% of total operating expenses, in 2004, as compared to $21.3
million, or 19.7% of total operating expenses, in 2003. The decrease as a
percentage of total operating expenses reflects the higher operating expenses
primarily a result of the provision for credit losses and interest expense.

Interest expense for 2004 increased $8.3 million, or 34.7%, to $32.1 million,
compared to $23.9 million in 2003. The increase is primarily the result of
changes in the amount and composition of securitization trust debt carried on
the Company's Consolidated Balance Sheet. Such debt increased as a result of the
change in securitization structure implemented beginning in July 2003, the TFC
Merger in May 2003 and the SeaWest Asset Acquisition in April 2004 (a combined
increase of approximately $10.3 million), partially offset by the decrease in
the balance of the securitization trust debt acquired in the MFN Merger
(resulting in a decrease of approximately $2.0 million in interest expense).

Impairment loss increased by $7.7 million, or 190.0%, to $11.8 million in 2004
as compared to $4.1 million in 2003. Such impairment loss relates to the
Company's analysis and estimate of the expected ultimate performance of the
Company's previously securitized pools that are held by non-consolidated
subsidiaries and the residual interest in securitizations. The impairment loss
is a result of the actual net loss and prepayment rates exceeding the Company's
previous estimates for the Contracts held by non-consolidated subsidiaries.

Marketing expenses increased by $3.0 million, or 55.0%, and represented 5.6% of
total operating expenses. The increase is primarily due to the increase in
Contracts purchased by the Company during the year ended December 31, 2004.

Occupancy expenses decreased by $410,000, or 10.4%, and represented 2.4% of
total operating expenses. The decrease is primarily due to the closure and
sub-leasing during 2004 of certain facilities acquired in the MFN Merger and the
TFC Merger.

Depreciation and amortization expenses decreased by $215,000, or 21.5%, to
$785,000 from $1.0 million.

No income tax benefit was recorded in 2004 as compared to $3.4 million recorded
in 2003 periods. The 2003 benefit is primarily the result of the resolution of
certain Internal Revenue Service examinations of previously filed MFN tax
returns, resulting in a tax benefit of $4.9 million, and other state tax matters
resulting in a tax provision of $1.5 million. The Company does not expect any
comparable income tax benefit in future periods.

THE YEAR ENDED DECEMBER 31, 2003 COMPARED TO THE YEAR ENDED DECEMBER 31, 2002

Revenues. During the year ended December 31, 2003, revenues were $105.0 million,
an increase of $6.6 million, or 6.7%, from the prior year revenue of $98.4
million. With the change in securitization structure and consequent end to
recording gain on sale revenue in the third quarter of 2003, net gain on sale of
Contracts decreased $11.1 million, or 51.6%, to $10.4 million in 2003, compared
to $21.5 million in 2002.

Interest income for the year ended December 31, 2003 increased $9.5 million, or
19.6%, to $58.2 million in 2003 from $48.6 million in 2002. The primary reasons
for the increase in interest income are the change in securitization structure
(an increase of $11.3 million), the interest income earned on the portfolio of
Contracts acquired in the TFC Merger (an increase of $13.9 million) and an
increase in residual interest income (an increase of $0.7 million). This
increase was partially offset by the decline in the balance of the portfolio of
Contracts acquired in the MFN Merger (resulting in a decrease of $16.4 million
in interest income).

Servicing fees totaling $17.1 million in the year ended December 31, 2003
increased $2.4 million, or 16.7%, from $14.6 million in the same period a year
earlier. The increase in servicing fees can be attributed to the growth of the
Company's managed portfolio held by non-consolidated subsidiaries related to the
CPS Programs. For the year ended December 31, 2003, the Company's managed
portfolio held by non-consolidated subsidiaries had an average outstanding
principal balance approximating $489.9 million, compared to $347.3 million for
the year ended December 31, 2002. At December 31, 2003, the Company's managed
portfolio held by consolidated subsidiaries had an outstanding principal balance
approximating $315.6 million, compared to $117.1 million as of December 31,
2002. As a result of the decision to structure future securitizations as secured
financings, the Company's managed portfolio held by non-consolidated
subsidiaries will decline in future periods, and servicing fee revenue is
anticipated to decline proportionately.

At December 31, 2003, the Company was generating income and fees on a managed
portfolio with an outstanding principal balance approximating $741.1 million,
compared to a managed portfolio with an outstanding principal balance
approximating $595.2 million as of December 31, 2002. As the portfolio of
Contracts acquired in the MFN Merger amortizes, the portfolio of Contracts
originated under the CPS and TFC programs continues to expand. At December 31,
2003 and 2002, the managed portfolio composition was as follows:

December 31, 2003 December 31, 2002
--------------------------- ---------------------------
Amount % Amount %
------------ ------------ ------------ ------------
Originating Entity ($ in millions)
CPS................................... $ 543.8 73.4% $ 394.3 66.2%
TFC................................... 123.6 16.7% -- 0.0%
MFN................................... 73.7 9.9% 200.9 33.8%
------------ ------------ ------------ ------------
Total................................. $ 741.1 100.0% $ 595.2 100.0%
============ ============ ============ ============

Other income increased 42% to $19.3 million in 2003 from $13.6 million in 2002.
The period over period increase can be attributed in part to the receipt of
state sales tax refunds of $3.2 million during third quarter of 2003 and
recoveries on previously charged off MFN Contracts totaling $12.2 million for
the year ended December 31, 2003, compared to $10.5 million for the comparable
period in 2002.

EXPENSES. The Company's operating expenses consist primarily of employee costs
and other operating expenses, which are incurred as applications and Contracts
are received, processed and serviced. Factors that affect margins and net income
include changes in the automobile and automobile finance market environments,
macroeconomic factors such as interest rates and the unemployment level, and mix
of business between Contracts purchased on a flow basis and Contracts purchased
on an other than flow basis. The Company ceased to purchase Contracts on a flow
basis in May 2002.

Employee costs include base salaries, commissions and bonuses paid to employees,
and certain expenses related to the accounting treatment of outstanding stock
options, and are one of the Company's most significant operating expenses. These
costs (other than those relating to stock options) generally fluctuate with the
level of applications and Contracts processed and serviced.

Total operating expenses were $108.0 million for the year ended December 31,
2003, compared to $98.3 million for the same period in 2002. Total operating
expenses for the year ended December 31, 2003 would have been significantly
lower except for the $11.4 million provision for credit loss expense recorded
during the third and fourth quarters of 2003. Such provision for credit loss is
a result of the decision to structure securitizations as financings, rather than
as sales. Provisions for credit loss expense should be anticipated to increase
in future periods.

Employee costs decreased to $37.1 million during the year ended December 31,
2003, representing 34.4% of total operating expenses, compared to $37.8 million
for the 2002 period, or 38.4% of total operating expenses. The decrease is
primarily the result of staff reductions since the MFN Merger in 2002 related to
the integration and consolidation of certain service and administrative
activities and the decline in the balance of the portfolio of Contracts acquired
in the MFN Merger (a decrease of $4.8 million). This decrease was partially
offset by staff additions related to the TFC Merger in May 2003 (an increase of
$3.6 million).

In connection with the termination of MFN origination activities and the
integration and consolidation of certain activities (see above) related to the
MFN Merger and the TFC Merger, the Company has recognized certain liabilities
related to the costs to exit these activities and terminate the affected
employees of MFN and TFC. These activities include service departments such as
accounting, finance, human resources, information technology, administration,
payroll and executive management. Such exit and termination costs have been
charged against these liabilities and are not reflected in the Company's
Consolidated Statement of Operations.

General and administrative expenses increased to $21.3 million, or 19.7% of
total operating expenses, in the year ended December 31, 2003, from $20.1
million, or 20.5% of total operating expenses, in the same period of 2002. The
decrease as a percentage of total operating expenses is a result primarily of
the change in securitization structure during the third quarter of 2003 which
increased total expenses, and of continued general cost cutting during the
period, offset in part by an increase in legal and other corporate expenses.

Interest expense for the year ended December 31, 2003, decreased $64,000, or
0.3%, to $23.9 million in 2003. The slight decrease is the result of changes in
the amount and composition of securitization trust debt carried on the Company's
Consolidated Balance Sheet: such debt related to the MFN Merger declined as it
was paid down (a decrease of $3.0 million), partially offset by the addition of
securitization trust debt associated with the TFC Merger (an increase of $2.9
million) and with the securitizations subsequent to the Company's change in
securitization structure (an increase of $0.1 million). As the Company continues
to structure future securitization transactions as secured financings, the
balances of securitization trust debt and the related interest expense are
expected to increase.

Impairment loss decreased by $1.0 million, or 20.1%, to $4.1 million in 2003 as
compared to $5.1 million in 2002. Such impairment loss relates to the Company's
analysis and estimate of the expected ultimate performance of the Company's
previously securitized pools that are held by non-consolidated subsidiaries and
the residual interest in securitizations.

Marketing expenses decreased by $873,000, or 14.0%, and represented 5.0% of
total operating expenses. The decrease is primarily due to the decrease in
Contracts purchased by the Company during the year ended December 31, 2003.

Occupancy expenses decreased by $97,000, or 2.4%, and represented 3.6% of total
operating expenses. The decrease is primarily due to the closure during 2003 of
certain facilities acquired in the MFN Merger. The decrease was partially offset
by the addition of facilities acquired in the TFC Merger.

Depreciation and amortization expenses decreased by $138,000, or 12.1%, to $1.0
million from $1.1 million.

Income tax benefit of $3.4 million and $2.9 million was recorded in the 2003 and
2002 periods, respectively. The 2003 benefit is primarily the result of the
resolution of certain Internal Revenue Service examinations of previously filed
MFN tax returns, resulting in a tax benefit of $4.9 million, and other state tax
matters which have been included in the current period tax provision. The 2002
benefit is due to tax legislation passed in early 2002, which enabled the
Company to reverse a previously recorded valuation allowance of approximately
$3.2 million, as well as to record benefit during the same 2002 period. The
Company does not expect any comparable income tax benefit in future periods.

EXTRAORDINARY ITEM. The year ended December 31, 2002 included $17.4 million of
unallocated negative goodwill, which represented the difference between the net
assets acquired and the purchase price paid by the Company in connection with
the MFN Merger.

LIQUIDITY AND CAPITAL RESOURCES

LIQUIDITY

The Company's business requires substantial cash to support its purchases of
Contracts and other operating activities. The Company's primary sources of cash
have been cash flows from operating activities, including proceeds from sales of
Contracts, amounts borrowed under various revolving credit facilities (also
sometimes known as warehouse credit facilities), servicing fees on portfolios of
Contracts previously sold in securitization transactions or serviced for third
parties, customer payments of principal and interest on finance receivables,
fees for origination of Contracts, and releases of cash from securitized
portfolios of Contracts in which the Company has retained a residual ownership
interest and from the Spread Accounts associated with such pools. The Company's
primary uses of cash have been the purchases of Contracts, repayment of amounts
borrowed under lines of credit and otherwise, operating expenses such as
employee, interest, occupancy expenses and other general and administrative
expenses, the establishment of Spread Accounts and initial
overcollateralization, if any, and the increase of Credit Enhancement to
required levels in securitization transactions, and income taxes. There can be
no assurance that internally generated cash will be sufficient to meet the
Company's cash demands. The sufficiency of internally generated cash will depend
on the performance of securitized pools (which determines the level of releases
from those portfolios and their related Spread Accounts), the rate of expansion
or contraction in the Company's managed portfolio, and the terms upon which the
Company is able to acquire, sell, and borrow against Contracts.

Net cash provided by operating activities for the years ended December 31, 2004,
2003 and 2002 was $12.2 million, $99.8 million and $146.9 million, respectively.
Cash from operating activities is generally provided by the net releases from
the Company's securitization Trusts and from the amortization of Contracts held
for sale to non-consolidated subsidiaries offset by the purchase of such
Contracts. The decrease in 2003 vs. 2002 is primarily a result of lower cash
releases from the MFN Trusts as the principal balance of the Contracts in those
two pools decreased significantly year-over-year. The decrease in 2004 vs. 2003
is primarily the result of the Company's decision, in July 2003, to treat all of
its future securitizations as secured financings. As a result 2004 includes no
activity related to Contracts held for sale.

On April 2, 2004, the Company purchased a portfolio of Contracts and certain
other assets in the SeaWest Asset Acquisition. The aggregate purchase price was
approximately $63.2 million, which was funded with the proceeds of an
acquisition financing facility and existing cash. On May 20, 2003, the Company
completed the TFC Merger (see Note 2 of Notes to Consolidated Financial
Statements). The acquisition cost was approximately $23.7 million, and was
substantially funded by existing cash. On March 8, 2002, the Company completed
the MFN Merger (see Note 2 of Notes to Consolidated Financial Statements). The
acquisition cost was approximately $123.2 million, and was substantially funded
by existing cash and borrowings.

Net cash used in investing activities for the years ended December 31, 2004,
2003 and 2002, was $314.0 million, $179.8 million, and $29.8 million,
respectively. Cash used in investing activities has generally related to
purchases of Contracts, the cost of acquiring TFC and MFN and the purchase of
furniture and equipment. With the change in the securitization structure
implemented in the third quarter of 2003, $506.0 million of Contracts were
purchased for investment in 2004 as compared to $175.3 million in 2003 and none
in 2002. Cash used in the TFC Merger, net of the cash acquired in the
transaction, totaled $10.2 million for the year ended December 31, 2003. Cash
used in the acquisition of MFN Financial Corporation, net of the cash acquired
in the transaction, totaled $29.5 million for the year ended December 31, 2002.

Net cash provided by financing activities for the year ended December 31, 2004,
was $285.3 million compared with $80.3 million in 2003 and net cash used in
financing activities of $86.8 million for the year ended December 31, 2002. Cash
used or provided by financing activities is primarily attributable to the
repayment or issuance of debt. In connection with the TFC Merger the Company
assumed securitization trust debt related to three securitization transactions
held by consolidated subsidiaries (see Note 7 of Notes to Consolidated Financial
Statements) and assumed additional subordinated debt (see Note 8 of Notes to
Consolidated Financial Statements). In connection with the MFN Merger the
Company assumed securitization trust debt related to one securitization
transaction held by a consolidated subsidiary and one securitization transaction
held by a non-consolidated subsidiary (see Note 7 of Notes to Consolidated
Financial Statements) and incurred additional senior secured debt (see Note 8 of
Notes to Consolidated Financial Statements). Cash used in financing activities
is primarily attributable to the repayment of outstanding debt. With the change
in the securitization structure implemented in the third quarter of 2003, $472.0
million of securitization trust debt was issued in 2004 as compared to $154.4
million in 2003 and none in 2002.

There can be no assurance that cash flows generated as a result of the SeaWest
Asset Acquisition, the TFC Merger and the MFN Merger will be sufficient to meet
the obligations assumed or incurred as a result of such transactions. The
sufficiency of internally generated cash will depend on the performance of the
securitized pools. At the time of the TFC Merger, TFC had outstanding $6.3
million in principal amount of subordinated debt, which the Company assumed as
part of the TFC Merger. Such debt bears interest at the rate of 13.25% per annum
payable monthly in arrears, requires monthly amortization, is due in June 2005
and has $1.0 million outstanding at December 31, 2004. At the time of the MFN
Merger, MFN had outstanding $22.5 million in principal amount of senior
subordinated debt, which was due and repaid in full on March 23, 2002. Such debt
bore interest at the rate of 11.00% per annum, payable quarterly in arrears.

Contracts are purchased from Dealers for a cash price approximating their
principal amount, adjusted for an acquisition fee which may either increase or
decrease the Contract purchase price, and generate cash flow over a period of
years. As a result, the Company has been dependent on warehouse credit
facilities to purchase Contracts, and on the availability of cash from outside
sources in order to finance its continuing operations, as well as to fund the
portion of Contract purchase prices not financed under revolving warehouse
credit facilities. As of December 31, 2004, the Company had $225 million in
warehouse credit capacity, in the form of a $125 million facility and a $100
million facility. The first facility provides funding for Contracts purchased
under the TFC Programs while both warehouse facilities provide funding for
Contracts purchased under the CPS Programs. A third facility in the amount of
$75 million, which the Company utilized to fund Contracts under the CPS
Programs, expired on February 21, 2004. A fourth facility in the amount of $25
million, which the Company utilized to fund Contracts under the TFC Programs,
expired on June 24, 2004.

Through May 2002, the Company's Contract purchasing program consisted of both
(i) flow purchases for immediate resale to non-affiliates and (ii) purchases for
the Company's own account made on other than a flow basis, funded primarily by
advances under a revolving warehouse credit facility. Flow purchases allowed the
Company to purchase Contracts with minimal demands on liquidity. The Company's
revenues from the resale of flow purchase Contracts, however, were materially
less than those that may be received by holding Contracts to maturity or by
selling Contracts in securitization transactions. During the years ended
December 31, 2004 and 2003 the Company purchased $447.2 million and $357.3
million, respectively, of Contracts for its own account, compared to $282.2
million for its own account and $181.1 million of Contracts on a flow basis in
2002. The Company's flow purchase program ended in May 2002.

The $125 million warehouse facility is structured to allow CPS to fund a portion
of the purchase price of Contracts by drawing against a floating rate variable
funding note issued by CPS Warehouse Trust. This facility was established on
March 7, 2002, in the maximum amount of $100 million. Such maximum amount was
increased to $125 million in November 2002. Up to 73% of the principal balance
of Contracts may be advanced to the Company under this facility, subject to
collateral tests and certain other conditions and covenants. Notes under this
facility accrue interest at a rate of one-month commercial paper plus 1.18% per
annum. This facility was renewed on April 5, 2004 and expires on April 4, 2005.

The $100 million warehouse facility is similarly structured to allow CPS to fund
a portion of the purchase price of Contracts by drawing against a floating rate
variable funding note issued by its subsidiary Page Funding LLC. Approximately
73.5% of the principal balance of Contracts may be advanced to the Company under
this facility, subject to collateral tests and certain other conditions and
covenants. Notes under this facility accrue interest at a rate of one-month
LIBOR plus 1.50% per annum. This facility was entered into on June 30, 2004. The
lender has annual termination options at its sole discretion on each June 30
through 2007, at which time the agreement expires.

The $75 million warehouse facility was similarly structured to allow CPS to fund
a portion of the purchase price of Contracts by drawing against a floating rate
variable funding note issued by CPS Funding LLC. Approximately 72.5% of the
principal balance of Contracts could be advanced to the Company under this
facility, subject to collateral tests and certain other conditions and
covenants. Notes under this facility accrued interest at a rate of one-month
LIBOR plus 0.75% per annum. This facility expired on February 21, 2004.

The $25 million warehouse facility was similarly structured to allow TFC to fund
a portion of the purchase price of Contracts by drawing against a floating rate
variable funding note issued by TFC Warehouse I LLC. Approximately 71% of the
principal balance of Contracts was advanced to TFC under this facility, subject
to collateral tests and certain other conditions and covenants. Notes under this
facility accrued interest at a rate of one-month LIBOR plus 1.75% per annum.
This facility expired on June 24, 2004.

These facilities are independent of each other. With the two currently existing
facilities, two different financial institutions purchase the notes issued by
these facilities, and two different insurers insure the notes (each a "Note
Insurer"). The Note Insurer on the $125 million facility is the controlling
party whereas the lender on the $100 million facility is the controlling party.
Up through June 30, 2003, sales of Contracts to the special purpose subsidiaries
("SPS") related to the first two facilities had been treated as sales for
financial accounting purposes. The Company, therefore, removed these securitized
Contracts and related debt from its Consolidated Balance Sheet and recognized a
gain on sale in the Company's Consolidated Statement of Operations. Indebtedness
related to Contracts funded by the third facility, however, was retained on the
Company's Consolidated Balance Sheet and no gain on sale has ever been
recognized in the Company's Consolidated Statement of Operations. During July
2003, each of the first two facilities was amended, with the effect that
subsequent use of such facilities is treated for financial accounting purposes
as borrowing secured by such receivables, rather than as a sale of receivables.
The effects of that amendment are similar to those discussed above with respect
to the change in securitization structure.

The Company securitized $463.9 million of Contracts in five private placement
transactions during the year ended December 31, 2004. All of these transactions
were structured as secured financings and, therefore, resulted in no gain on
sale. The Company securitized $416.9 million of Contracts in four private
placement transactions during the year ended December 31, 2003. The first two
such transactions of 2003 were structured as sales for financial accounting
purposes, resulting in a gain on sale of $6.4 million (net of a negative fair
value adjustment of $4.1 million related to the performance of previously
securitized pools). The final two transactions of 2003 were structured as
secured financings and, therefore, resulted in no gain on sale. The Company
securitized $281.2 million of Contracts in three private placement transactions
during the year ended December 31, 2002. All of these transactions were
structured as sales for financial accounting purposes, resulting in a gain on
sale of $16.9 million (net of a pre-tax charge of $2.5 million related to the
performance of previously securitized pools). In March 2004 a wholly-owned
bankruptcy remote consolidated subsidiary of the Company issued $44 million of
asset-backed notes secured by its retained interest in eight term securitization
transactions. The notes, which have an interest rate of 10% per annum and a
final maturity in October 2009, are required to be repaid from the distributions
on the underlying retained interests. In connection with the issuance of the
notes, the Company incurred and capitalized issuance costs of $1.3 million.

Prior to June 2002, the Company also purchased Contracts on a flow basis, which,
as compared with purchases of Contracts for the Company's own account, involved
a materially reduced demand on the Company's cash. The Company's plan for
meeting its liquidity needs is to match its levels of Contract purchases to its
availability of cash.

For the portfolio owned by non-consolidated subsidiaries, cash used to increase
Credit Enhancement amounts to required levels for the years ended December 31,
2004, 2003 and 2002 was $2.1 million, $20.9 million and $24.2 million,
respectively. Cash released from Trusts and their related Spread Accounts to the
Company related to the portfolio owned by non-consolidated subsidiaries for the
years ended December 31, 2004, 2003 and 2002 was $17.2 million, $25.9 million
and $60.4 million, respectively. Changes in the amount of Credit Enhancement
required for term securitization transactions and releases from Trusts and their
related Spread Accounts are affected by the relative size, seasoning and
performance of the various pools of Contracts securitized that make up the
Company's managed portfolio to which the respective Spread Accounts are related.

During the year ended December 31, 2004 the Company made no initial deposits to
Spread Accounts and funded no initial overcollateralization related to its term
securitization transactions owned by non-consolidated subsidiaries, compared to
$18.7 million in the 2003 period and $16.7 million in the 2002 period. The
acquisition of Contracts for subsequent sale in securitization transactions, and
the need to fund Spread Accounts and initial overcollateralization, if any, and
increase Credit Enhancement levels when those transactions take place, results
in a continuing need for capital. The amount of capital required is most heavily
dependent on the rate of the Company's Contract purchases (other than flow
purchases), the required level of initial Credit Enhancement in securitizations,
and the extent to which the previously established Trusts and their related
Spread Accounts either release cash to the Company or capture cash from
collections on securitized Contracts. The Company is currently limited in its
ability to purchase Contracts due to certain liquidity constraints. As of
December 31, 2004, the Company had cash on hand of $14.4 million and available
Contract purchase commitments from its warehouse credit facilities of $190.7
million. The Company's plans to manage the need for liquidity include the
completion of additional term securitizations that would provide additional
credit availability from the warehouse credit facilities, and matching its
levels of Contract purchases to its availability of cash. There can be no
assurance that the Company will be able to complete term securitizations on
favorable economic terms or that the Company will be able to complete term
securitizations at all. If the Company is unable to complete such
securitizations, interest income and other portfolio related income would
decrease.

The Company's primary means of ensuring that its cash demands do not exceed its
cash resources is to match its levels of Contract purchases to its availability
of cash. The Company's ability to adjust the quantity of Contracts that it
purchases and securitizes will be subject to general competitive conditions and
the continued availability of warehouse credit facilities. There can be no
assurance that the desired level of Contract acquisition can be maintained or
increased. While the specific terms and mechanics of each Spread Account vary
among transactions, the Company's Securitization Agreements generally provide
that the Company will receive excess cash flows only if the amount of Credit
Enhancement has reached specified levels and/or the delinquency, defaults or net
losses related to the Contracts in the pool are below certain predetermined
levels. In the event delinquencies, defaults or net losses on the Contracts
exceed such levels, the terms of the securitization: (i) may require increased
Credit Enhancement to be accumulated for the particular pool; (ii) may restrict
the distribution to the Company of excess cash flows associated with other
pools; or (iii) in certain circumstances, may permit the insurers to require the
transfer of servicing on some or all of the Contracts to another servicer. There
can be no assurance that collections from the related Trusts will continue to
generate sufficient cash.

Certain of the Company's securitization transactions and the warehouse credit
facilities contain various financial covenants requiring certain minimum
financial ratios and results. Such covenants include maintaining minimum levels
of liquidity and net worth and not exceeding maximum leverage levels and maximum
financial losses. As a result of waivers and amendments to these covenants
throughout 2004 and during the first quarter of 2005, the Company was in
compliance with all such covenants as of December 31, 2004. Without the waivers
and amendments obtained in the first quarter of 2005, the Company would have
been in breach of covenants related to maintaining a minimum level of net worth
and incurring a maximum financial loss as of December 31, 2004.

The Servicing Agreements of the Company's securitization transactions and
warehouse credit facilities are terminable by the insurers of certain of the
Trust's obligations ("Note Insurers") in the event of certain defaults by the
Company and under certain other circumstances. Were a Note Insurer in the future
to exercise its option to terminate the Servicing Agreements, such a termination
would have a material adverse effect on the Company's liquidity and results of
operations. The Company continues to receive Servicer extensions on a monthly
and/or quarterly basis, pursuant to the Servicing Agreements.

CONTRACTUAL OBLIGATIONS

The following table summarizes the Company's material contractual obligations as
of December 31, 2004 (dollars in thousands):

Payment due by period(1)
-------------------------------------------------------------------
Less than 1 to 3 3 to 5 More than
Total 1 Year Years Years 5 Years
----------- ----------- ----------- ----------- -----------

Long Term Debt............................ $ 76,250 $ 37,039 $ 39,211 $ -- $ --
Operating Leases.......................... $ 12,437 $ 4,370 $ 6,319 $ 1,748 $ --
______________

(1)Securitization trust debt, in the aggregate amount of $542.8 million as of
December 31, 2004, is omitted from this table because it becomes due as and when
the related receivables balance is reduced. Expected payments, which will depend
on the performance of such receivables, as to which there can be no assurance,
are $202.7 million in 2005, $150.8 million in 2006, $94.9 million in 2007, $56.3
million in 2008, $31.2 million in 2009, and $6.9 million in 2010

Long term debt includes senior secured, subordinated debt and notes payable.

CREDIT FACILITIES

The terms on which credit has been available to the Company for purchase of
Contracts have varied over the three-year period ended December 31, 2004, as
shown in the following recapitulation:

In November 2000, the Company (through its subsidiary CPS Funding LLC) entered
into a floating rate variable note purchase facility under which up to $75
million of notes may be outstanding at any time subject to collateral tests and
other conditions. The Company uses funds derived from this facility to purchase
Contracts under the CPS Programs, which are pledged to secure the notes. The
collateral tests and other conditions generally allow the Company to borrow up
to approximately 72.5% of the price paid for such Contracts. Notes issued under
this facility bear interest at one-month LIBOR plus 0.75% per annum. This
facility expired on February 21, 2004.

Additionally, in March 2002, the Company (through its subsidiary CPS Warehouse
Trust) entered into a second floating rate variable note purchase facility,
under which up to $125.0 million of notes may be outstanding at any time,
subject to collateral tests and other conditions. The Company uses funds derived
from this facility to purchase Contracts under the CPS Programs and the TFC
Programs, which are pledged to secure the notes. The collateral tests and other
conditions generally allow the Company to borrow up to approximately 73% of the
price paid for such Contracts for Contracts purchased under the CPS Programs.
Notes issued under this facility bear interest at commercial paper plus 1.18%
per annum. During November 2004, this facility was amended to allow the Company
to borrow up to approximately 70% for Contracts purchased under the TFC
Programs. The balance of notes outstanding related to this facility at December
31, 2004 was $34.3 million. This facility expires on April 3, 2005. The Company
is currently in discussions with the related parties to renew such facility.

In connection with the TFC Merger in May 2003, the Company (through its
subsidiary TFC Warehouse I LLC) entered into a third floating rate variable note
purchase facility, under which up to $25.0 million of notes may be outstanding
at any time, subject to collateral tests and other conditions. The Company uses
funds derived from this facility to purchase Contracts under the TFC programs,
which are pledged to secure the notes. The collateral tests and other conditions
generally allow the Company to borrow up to approximately 71% of the price paid
for such Contracts. Notes issued under this facility bear interest at LIBOR plus
1.75% per annum. This facility expired on June 24, 2004.

In June 2004, the Company (through its subsidiary Page Funding LLC) entered into
a floating rate variable note purchase facility to replace the $75 million
facility described above. Up to $100 million of notes may be outstanding under
this facility at any time subject to certain collateral tests and other
conditions. The Company uses funds derived from this facility to purchase
Contracts under the CPS Programs, which are pledged to secure the notes. The
collateral tests and other conditions generally allow the Company to borrow up
to approximately 73.5% of the price paid for such Contracts. Notes issued under
this facility bear interest at one-month LIBOR plus 1.50% per annum. The balance
of notes outstanding related to this facility at December 31, 2004 was zero.

CAPITAL RESOURCES

Prior to 1999, and again in 2001, 2002, 2003 and 2004 the Company has funded
increases in its managed portfolio through securitization transactions, as
discussed above, and funded its other capital needs with cash from operations
and with the proceeds from the issuance of long-term debt and/or equity.

As noted above, $37,039,000 of long-term debt matures prior to December 31,
2005. The Company plans to repay its long-term debt from a combination of the
following: (1) the proceeds from a public offering of renewable notes; (ii) a
possible transaction similar to the financing that it undertook in March 2004
where the Company issued notes secured by its residual interests in
securitizations; and (iii) possible senior secured financing similar to its
existing outstanding senior secured financing. There can be no assurance that
the Company will be able to complete these transactions. Securitization trust
debt is repaid from collections on the related receivables, and becomes due in
accordance with its terms as the principal amount of the related receivables is
reduced. Although the securitization trust debt also has alternative maximum
maturity dates, those dates are significantly later than the dates at which
repayment of the related receivables is anticipated, and at no time in the
Company's history have any of its sponsored asset-backed securities reached
those alternative maximum maturities.

The acquisition of Contracts for subsequent transfer in securitization
transactions, and the need to fund Spread Accounts and initial
overcollateralization, if any, when those transactions take place, results in a
continuing need for capital. The amount of capital required is most heavily
dependent on the rate of the Company's Contract purchases, the required level of
initial credit enhancement in securitizations, and the extent to which the
Trusts and related Spread Accounts either release cash to the Company or capture
cash from collections on securitized Contracts. The Company plans to adjust its
levels of Contract purchases so as to match anticipated releases of cash from
the Trusts and related Spread Accounts with its capital requirements.

CAPITALIZATION

Over the three-year period ended December 31, 2004, the Company has managed its
capitalization by issuing and restructuring debt as summarized in the following
table:

Year Ended December 31,
----------------------------------------------------
2004 2003 2002
-------------- -------------- --------------
(In thousands)
Securitization trust debt:
Beginning balance .................................... $ 245,118 $ 71,630 $ --
Assumption in connection with MFN & TFC Merger .... -- 115,597 156,923
Issuances ......................................... 474,720 154,375 --
Payments .......................................... (177,023) (96,484) (85,293)
-------------- -------------- --------------
Ending balance ....................................... $ 542,815 $ 245,118 $ 71,630
============== ============== ==============

Senior secured debt:
Beginning balance .................................... $ 49,965 $ 50,072 $ 26,000
Issuances ......................................... 25,000 25,000 46,242
Payments .......................................... (15,136) (25,107) (22,170)
-------------- -------------- --------------
Ending balance ....................................... $ 59,829 $ 49,965 $ 50,072
============== ============== ==============

Subordinated debt:
Beginning balance .................................... $ 35,000 $ 36,000 $ 36,989
Assumption in connection with MFN & TFC Merger .... -- -- 22,500
Payments .......................................... (20,000) (1,000) (23,489)
-------------- -------------- --------------
Ending balance ....................................... $ 15,000 $ 35,000 $ 36,000
============== ============== ==============

Related party debt:
Beginning balance .................................... $ 17,500 $ 17,500 $ 17,500
Non-cash conversion ............................... (1,000) -- --
Payments .......................................... (16,500) -- --
-------------- -------------- --------------
Ending balance ....................................... $ -- $ 17,500 $ 17,500
============== ============== ==============

The assumption of debt related to the TFC Merger is included in the 2003
activity in the table above. The assumption of debt related to the MFN Merger is
included in the 2002 activity in the table above.

During the first quarter of 2001, the Company purchased a total of $8,000,000 of
outstanding indebtedness held by Levine Leichtman Capital Partners II, L.P.
("LLCP") and Stanwich Financial Services Corp. ("SFSC"). The Company purchased
and retired $4,000,000 of subordinated debt held by SFSC in exchange for payment
of $3,920,000, and purchased and retired $4,000,000 of senior secured debt held
by LLCP in exchange for payment of $4,200,000. The LLCP debt by its terms called
for a prepayment penalty of 3% (or $120,000); the additional 2% (or $80,000)
paid in connection with its February 2001 prepayment was absorbed by SFSC.

In March 2002, the Company and LLCP entered into an additional series of
agreements under which LLCP provided additional funding to enable the Company to
acquire MFN Financial Corporation. Under the March 2002 agreements, the Company
borrowed $35 million from LLCP as a bridge note (the "Bridge Note") and
approximately $8.5 million (the "Term C Note") on a deemed principal amount of
approximately $11.2 million. The Bridge Note requires principal payments of $2.0
million a month, which began in June 2002, with a final balloon payment in the
amount of $17.0 million, which was made pursuant to the terms of the Bridge Note
in February 2003. The Term C Note repayment schedule is based on the performance
of a certain securitized pool. As the subordinated Note of the pool is repaid
from the Trust, principal payments are due on the Term C Note. The maturity date
of the Term C Note was March 2008. Interest was due monthly on the Bridge Note
at a rate of 13.5% per annum and on the Term C Note at a rate of 12.0% per
annum. In connection with the March 2002 agreements and the acquisition of MFN,
the Company paid LLCP a structuring fee of $1.75 million and an investment
banking fee of $1.0 million, and paid LLCP's out-of-pocket expenses of
approximately $315,000. In addition, the Company paid LLCP certain other fees
and interest amounting to $426,181. Approximately $1.4 million of the fees and
other amounts paid to LLCP were deferred as financing costs and are being
amortized over the life of the related debt. The remaining fees and other costs
were included in the purchase price of MFN.

At the time of the MFN Merger, MFN had outstanding $22.5 million in principal
amount of senior subordinated debt, which was due and repaid in full on March
23, 2002. Such debt bore interest at the rate of 11.00% per annum, payable
quarterly in arrears. At the time of the TFC Merger, TFC had outstanding $6.3
million in principal amount of subordinated debt, which the Company assumed as
part of the TFC Merger. The remaining debt bears interest at the rate of 13.25%
per annum payable monthly in arrears, requires monthly amortization and is due
in June 2005.

On February 3, 2003, the Company borrowed $25.0 million from LLCP, net of fees
and expenses of $1.05 million. The indebtedness, represented by the "Term D
Note," was originally due in April 2003, with Company options to extend the
maturity to May 2003 and January 2004, upon payment of successive extension fees
of $125,000. The Company has paid the fees to extend the maturity to January
2004. Interest on the Term D Note is payable monthly at rates that averaged
4.79% per annum through June 30, 2003, and 12.0% per annum thereafter. In a
separate transaction, the Bridge Note issued to LLCP in connection with the
acquisition of MFN, in an original principal amount of $35.0 million, was due on
February 28, 2003. The outstanding principal balance of $17.0 million was paid
in February 2003. In addition, the maturity of the Term B Note was extended in
October 2003 from November 2003 to January 2004. The Company repaid in full the
Term C Note on January 29, 2004 and repaid $10.0 million of the Term D Note on
January 15, 2004. In addition, on January 29, 2004 the maturities of the Term B
Note and the Term D Note were extended to December 15, 2005 and the coupons on
both notes were decreased to 11.75% per annum from 14.50% and 12.00%,
respectively. The Company paid LLCP fees equal to $921,000 for these amendments,
which will be amortized over the remaining life of the notes. As of December 31,
2004, the outstanding principal balances of the Term B Note and the Term D Note
were $19.8 million and $15.0 million, respectively.

On May 28, 2004 and June 25, 2004, the Company borrowed $15 million and $10
million, respectively, from LLCP. The indebtedness, represented by the "Term E
Note," and the "Term F Note," respectively, bears interest at 11.75% per annum.
Both the Term E Note and the Term F Note mature two years from their respective
funding dates. As of December 31, 2004, the outstanding principal balances of
the Term E Note and the Term F Note were $15.0 million and $10.0 million,
respectively.

In the second quarter of 2004, the Company retired an aggregate of $37.5 million
of long-term indebtedness, comprising (i) $20.0 million of partially convertible
debt ("Participating Equity Notes" or "PENs") issued in an April 1997 public
offering and bearing interest at 10.50% per annum, (ii) $15.0 million of debt
issued in June 1997 to SFSC on terms similar to those of the PENs, but bearing
interest at 9.00% per annum, (iii) $1.0 million of convertible debt issued in
1998 to a director of the Company, bearing interest at 12.50% per annum, and
(iv) $1.5 million of debt issued in 1999 to SFSC, bearing interest at 14.50% per
annum. The indebtedness to the director was converted, in accordance with its
terms, into common stock at the rate of $3.00 per share; the remainder of such
indebtedness was repaid.

LLCP holds approximately 21.2% of the Company's outstanding common shares. SFSC
was an affiliate of Charles E. Bradley, Sr., the Company's former chairman and
father of the company's current chairman and Chief Executive Officer, and SFSC
and Mr. Bradley, Sr. together hold approximately 8.9% of the Company's
outstanding common shares.

The Company must comply with certain affirmative and negative covenants related
to debt facilities, which require, among other things, that the Company maintain
certain financial ratios related to liquidity, net worth, capitalization,
investments, acquisitions, restricted payments and certain dividend
restrictions. As a result of waivers and amendments to covenants related to
securitization and non-securitization related debt throughout 2004 and during
the first quarter of 2005, the Company was in compliance with all such covenants
as of December 31, 2004. Without the waivers and amendments obtained in the
first quarter of 2005, the Company would have been in breach of covenants
related to maintaining a minimum level of net worth and incurring a maximum
financial loss as of December 31, 2004. In addition, certain securitization and
non-securitization related debt contain cross-default provisions, which would
allow certain creditors to declare default if a default were declared under a
different facility.

In July 2000, the Board of Directors authorized the purchase of up to $5,000,000
of outstanding debt and equity securities of the Company, inclusive of the
mandatory annual purchase or redemption of $1,000,000 of the Company's
outstanding "RISRS" subordinated debt securities, due 2006. In October 2002, the
Board of Directors authorized the purchase of an additional $5,000,000 of
outstanding debt or equity securities. In October 2004, the Board of Directors
authorized the purchase of an additional $5,000,000 of outstanding debt or
equity securities. As of December 31, 2004, the Company had purchased $4.0
million in principal amount of the RISRS, and $4.0 million of its common stock,
representing 2,167,036 shares.

FORWARD-LOOKING STATEMENTS

This report on Form 10-K includes certain "forward-looking statements,"
including, without limitation, the statements or implications to the effect that
prepayments as a percentage of original balances will approximate 20.0% to 30.5%
cumulatively over the lives of the related Contracts, that charge-offs as a
percentage of original balances will approximate 17.2% to 26.3% cumulatively
over the lives of the related Contracts, with recovery rates approximating 3.2%
to 5.8% of original principal balances. Other forward-looking statements may be
identified by the use of words such as "anticipates," "expects," "plans,"
"estimates," or words of like meaning. As to the specifically identified
forward-looking statements, factors that could affect charge-offs and recovery
rates include changes in the general economic climate, which could affect the
willingness or ability of obligors to pay pursuant to the terms of Contracts,
changes in laws respecting consumer finance, which could affect the ability of
the Company to enforce rights under Contracts, and changes in the market for
used vehicles, which could affect the levels of recoveries upon sale of
repossessed vehicles. Factors that could affect the Company's revenues in the
current year include the levels of cash releases from existing pools of
Contracts, which would affect the Company's ability to purchase Contracts, the
terms on which the Company is able to finance such purchases, the willingness of
Dealers to sell Contracts to the Company on the terms that it offers, and the
terms on which the Company is able to complete term securitizations once
Contracts are acquired. Factors that could affect the Company's expenses in the
current year include competitive conditions in the market for qualified
personnel, and interest rates (which affect the rates that the Company pays on
Notes issued in its securitizations). The statements concerning the Company

structuring future securitization transactions as secured financings and the
effects of such structures on financial items and on the Company's future
profitability also are forward-looking statements. Any change to the structure
of the Company's securitization transaction could cause such forward-looking
statements not to be accurate. Both the amount of the effect of the change in
structure on the Company's profitability and the duration of the period in which
the Company's profitability would be affected by the change in securitization
structure are estimates. The accuracy of such estimates will be affected by the
rate at which the Company purchases and sells Contracts, any changes in that
rate, the credit performance of such Contracts, the financial terms of future
securitizations, any changes in such terms over time, and other factors that
generally affect the Company's profitability.

Additional risk factors, any of which could have a material effect on the
Company's performance, are set forth below:

DEPENDENCE ON WAREHOUSE FINANCING. The Company's primary source of day-to-day
liquidity is continuous securitization of Contracts, under which it sells or
pledges Contracts, as often as once a week, to either of two special-purpose
affiliated entities in the case of CPS, or to one of the two special-purpose
affiliated entities in the case of TFC. Such transactions function as a
"warehouse," in which Contracts are held. The Company expects to continue to
effect similar transactions (or to obtain replacement or additional financing)
as current arrangements expire or become fully utilized; however, there can be
no assurance that such financing will be obtainable on favorable terms. To the
extent that the Company is unable to maintain its existing structures or is
unable to arrange new warehouse facilities, the Company may have to curtail
Contract purchasing activities, which could have a material adverse effect on
the Company's financial condition, results of operations and liquidity.

DEPENDENCE ON SECURITIZATION PROGRAM. The Company is dependent upon its ability
to continue to finance pools of Contracts in term securitizations in order to
generate cash proceeds for new purchases. Adverse changes in the market for
securitized Contract pools, or a substantial lengthening of the warehousing
period, would burden the Company's financing capabilities, could require the
Company to curtail its purchase of Contracts, and could have a material adverse
effect on the Company. In addition, as a means of reducing the percentage of
cash collateral that the Company would otherwise be required to deposit and
maintain in Spread Accounts and overcollateralization, all of the Company's
securitizations since June 1994 have utilized Credit Enhancement in the form of
financial guaranty insurance policies issued by monoline financial guaranty
insurers. The Company believes that financial guaranty insurance policies reduce
the costs of securitizations relative to alternative forms of Credit
Enhancements available to the Company. No insurer is required to insure
Company-sponsored securitizations and there can be no assurance that any will
continue to do so. Similarly, there can be no assurance that any securitization
transaction will be available on terms acceptable to the Company, or at all. The
timing of any securitization transaction is affected by a number of factors
beyond the Company's control, any of which could cause substantial delays,
including, without limitation, market conditions and the approval by all parties
of the terms of the securitization.

RISK OF GENERAL ECONOMIC DOWNTURN. The Company's business is directly related to
sales of new and used automobiles, which are affected by employment rates,
prevailing interest rates and other domestic economic conditions. Delinquencies,
repossessions and losses generally increase during economic slowdowns or
recessions. Because of the Company's focus on Sub-Prime Customers, the actual
rates of delinquencies, repossessions and losses on such Contracts could be
higher under adverse economic conditions than those experienced in the
automobile finance industry in general. Any sustained period of economic
slowdown or recession could adversely affect the Company's ability to sell or
securitize pools of Contracts. The timing of any economic changes is uncertain,
and sluggish sales of automobiles and weakness in the economy could have an
adverse effect on the Company's business and that of the Dealers from which it
purchases Contracts.

DEPENDENCE ON PERFORMANCE OF SECURITIZED CONTRACTS. Under the financial
structures the Company has used to date in its term securitizations, certain
excess cash flows generated by the Contracts sold in the term securitizations
are used to increase overcollateralization or retained in a Spread Account
within the securitization trusts to provide liquidity and credit enhancement.
While the specific terms and mechanics of each Spread Account vary among
transactions, the Company's Securitization Agreements generally provide that the
Company will receive excess cash flows only if the amount of Credit Enhancement
has reached specified levels and/or the delinquency, defaults or net losses
related to the Contracts in the pool are below certain predetermined levels. In
the event delinquencies, defaults or net losses on the Contracts exceed such
levels, the terms of the securitization: (i) may require increased Credit
Enhancement to be accumulated for the particular pool; (ii) may restrict the
distribution to the Company of excess cash flows associated with other pools; or
(iii) in certain circumstances, may permit the insurers to require the transfer
of servicing on some or all of the Contracts to another servicer. Any of these
conditions could materially adversely affect the Company's liquidity and
financial condition.

CREDITWORTHINESS OF CONSUMERS. The Company specializes in the purchase, sale and
servicing of Contracts to finance automobile purchases by Sub-Prime Customers,
which entail a higher risk of non-performance, higher delinquencies and higher
losses than Contracts with more creditworthy customers. While the Company
believes that the underwriting criteria and collection methods it employs enable
it to control the higher risks inherent in Contracts with Sub-Prime Customers,
no assurance can be given that such criteria and methods will afford adequate
protection against such risks. The Company has experienced fluctuations in the
delinquency and charge-off performance of its Contracts. In the event that
portfolios of Contracts securitized and serviced by the Company experience
greater defaults, higher delinquencies or higher net losses than anticipated,
the Company's income could be negatively affected. A larger number of defaults
than anticipated could also result in adverse changes in the structure of the
Company's future securitization transactions, such as a requirement of increased
cash collateral or other Credit Enhancement in such transactions.

PROBABLE INCREASE IN COST OF FUNDS. The Company's profitability is determined
by, among other things, the difference between the rate of interest charged on
the Contracts purchased by the Company and the rate of interest payable to
purchasers of Notes issued in securitizations. The Contracts purchased by the
Company generally bear finance charges close to or at the maximum permitted by
applicable state law. The interest rates payable on such Notes are fixed, based
on interest rates prevailing in the market at the time of sale. Consequently,
increases in market interest rates tend to reduce the "spread" or margin between
Contract finance charges and the interest rates required by investors and, thus,
the potential operating profits to the Company from the purchase, securitization
and servicing of Contracts. Operating profits expected to be earned by the
Company on portfolios of Contracts previously securitized are insulated from the
adverse effects of increasing interest rates because the interest rates on the
related Notes were fixed at the time the Contracts were sold. With interest
rates near historical lows as of the date of this report, it is reasonable to
expect that interest rates will increase in the near to intermediate term. Any
future increases in interest rates would likely increase the interest rates on
Notes issued in future term securitizations and could have a material adverse
effect on the Company's results of operations and liquidity.

PREPAYMENTS AND CREDIT LOSSES. Gains from the sale of Contracts in the Company's
past securitization transactions structured as sales for financial accounting
purposes have constituted a significant portion of the revenue of the Company. A
portion of the gains is based in part on management's estimates of future
prepayments and credit losses and other considerations in light of then-current
conditions. If actual prepayments with respect to Contracts occur more quickly
than was projected at the time such Contracts were sold, as can occur when
interest rates decline, or if credit losses are greater than projected at the
time such Contracts were sold, a charge to income may be required and would be
taken in the period of adjustment (as has been the case, for example, in the
year ended December 31, 2004). If actual prepayments occur more slowly or if net
losses are lower than estimated with respect to Contracts sold, total revenue
would exceed previously estimated amounts.

Provisions for credit losses are recorded in connection with the origination and
throughout the life of Contracts that are held on the Company's Consolidated
Balance Sheet. Such provisions are based on management's estimates of future
credit losses in light of then-current conditions. If actual credit losses in a
given period exceed the allowance for credit losses, a bad debt expense during
the period would be required.

COMPETITION. The automobile financing business is highly competitive. The
Company competes with a number of national, local and regional finance
companies. In addition, competitors or potential competitors include other types
of financial services companies, such as commercial banks, savings and loan
associations, leasing companies, credit unions providing retail loan financing
and lease financing for new and used vehicles and captive finance companies
affiliated with major automobile manufacturers such as General Motors Acceptance
Corporation and Ford Motor Credit Corporation. Many of the Company's competitors
and potential competitors possess substantially greater financial, marketing,
technical, personnel and other resources than the Company. Moreover, the
Company's future profitability will be directly related to the availability and
cost of its capital relative to that of its competitors. The Company's
competitors and potential competitors include far larger, more established
companies that have access to capital markets for unsecured commercial paper and
investment grade rated debt instruments, and to other funding sources which may
be unavailable to the Company. Many of these companies also have longstanding
relationships with Dealers and may provide other financing to Dealers, including
floor plan financing for the Dealers' purchases of automobiles from
manufacturers, which is not offered by the Company. There can be no assurance
that the Company will be able to continue to compete successfully.

LITIGATION. Because of the consumer-oriented nature of the industry in which the
Company operates and the application of certain laws and regulations, industry
participants are regularly named as defendants in class-action litigation
involving alleged violations of federal and state laws and regulations and
consumer law torts, including fraud. Many of these actions involve alleged
violations of consumer protection laws. Although the Company is not involved in
any such material consumer protection litigation, a significant judgment against
the Company or within the industry in connection with any such litigation, or an
adverse outcome in the litigation identified under the caption "Legal
Proceedings" in this report, could have a material adverse effect on the
Company's financial condition, results of operations and liquidity.

DEPENDENCE ON DEALERS. The Company is dependent upon establishing and
maintaining relationships with unaffiliated Dealers to supply it with Contracts.
During the year ended December 31, 2004, no Dealer accounted for more than 1.0%
of the Contracts purchased by the Company. The Dealer Agreements do not require
Dealers to submit a minimum number of Contracts for purchase by the Company. The
failure of Dealers to submit Contracts that meet the Company's underwriting
criteria would have a material adverse effect on the Company's financial
condition, results of operations and liquidity.

GOVERNMENT REGULATIONS. The Company's business is subject to numerous federal
and state consumer protection laws and regulations, which, among other things:
(i) require the Company to obtain and maintain certain licenses and
qualifications; (ii) limit the interest rates, fees and other charges the
Company is allowed to charge; (iii) limit or prescribe certain other terms of
its Contracts; (iv) require the Company to provide specified disclosures; and
(v) regulate certain servicing and collection practices and define its rights to
repossess and sell collateral. An adverse change in existing laws or
regulations, or in the interpretation thereof, the promulgation of any
additional laws or regulations, or the failure to comply with such laws and
regulations could have a material adverse effect on the Company's financial
condition, results of operations and liquidity.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board ("FASB") published
FASB Statement No. 123 (revised 2004), "Share-Based Payment" ("FAS 123(R)" or
the "Statement"). FAS 123 (R) requires that the compensation cost relating to
share-based payment transactions, including grants of employee stock options, be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. FAS 123(R) permits entities
to use any option-pricing model that meets the fair value objective in the
Statement. (Modifications of share-based payments will be treated as replacement
awards with the cost of the incremental value recorded in the financial
statements.)

The Statement is effective at the beginning of the third quarter of 2005. As of
the effective date, the Company will apply the Statement using a modified
version of prospective application. Under that transition method, compensation
cost is recognized for (1) all awards granted after the required effective date
and to awards modified, cancelled, or repurchased after that date and (2) the
portion of prior awards for which the requisite service has not yet been
rendered, based on the grant-date fair value of those awards calculated for pro
forma disclosures under SFAS 123.

The impact of this Statement on the Company in 2005 and beyond will depend upon
various factors, among them being our future compensation strategy. The pro
forma compensation costs presented (in the table above) and in prior filings for
the Company have been calculated using a Black-Scholes option pricing model and
may not be indicative of amounts that should be expected in future periods.

In December 2003, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 03-3 ("SOP 03-3"), Accounting for Certain Loans
or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for
differences between contractual cash flows and the cash flows expected to be
collected from purchased loans or debt securities if those differences are
attributable, in part, to credit quality. SOP 03-3 requires purchased loans and
debt securities to be recorded initially at fair value based on the present
value of the cash flows expected to be collected with no carryover of any
valuation allowance previously recognized by the seller. Interest income should
be recognized based on the effective yield from the cash flows expected to be
collected. To the extent that the purchased loans or debt securities experience
subsequent deterioration in credit quality, a valuation allowance would be
established for any additional cash flows that are not expected to be received.
However, if more cash flows subsequently are expected to be received than
originally estimated, the effective yield would be adjusted on a prospective
basis. SOP 03-3 will be effective for loans and debt securities acquired after
December 31, 2004. The Company's finance receivables are acquired shortly after
origination and there is no credit deterioration during the time between
origination of the finance receivable and purchase by the Company. Accordingly,
management does not expect the adoption of this statement to have a material
impact on the Company's consolidated financial statements.

OFF-BALANCE SHEET ARRANGEMENTS

Prior to July 2003, the Company structured its securitization transactions to
meet the accounting criteria for sales of finance receivables. In this structure
the notes issued by the Company's special purpose subsidiary do not appear as
debt on the Company's consolidated balance sheet. See Critical Accounting
Policies for a detailed discussion of the Company's securitization structure.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

INTEREST RATE RISK

The Company is subject to interest rate risk during the period between when
Contracts are purchased from Dealers and when such Contracts become part of a
term securitization. Specifically, the interest rates on the warehouse
facilities are adjustable while the interest rates on the Contracts are fixed.
Historically, the Company's term securitization facilities have had fixed rates
of interest. To mitigate some of this risk, the Company has in the past, and
intends to continue to, structure certain of its securitization transactions to
include pre-funding structures, whereby the amount of Notes issued exceeds the
amount of Contracts initially sold to the Trusts. In pre-funding, the proceeds
from the pre-funded portion are held in an escrow account until the Company
sells the additional Contracts to the Trust in amounts up to the balance of the
pre-funded escrow account. In pre-funded securitizations, the Company locks in
the borrowing costs with respect to the Contracts it subsequently delivers to
the Trust. However, the Company incurs an expense in pre-funded securitizations
equal to the difference between the money market yields earned on the proceeds
held in escrow prior to subsequent delivery of Contracts and the interest rate
paid on the Notes outstanding, the amount as to which there can be no assurance.

The following table provides information on the Company's interest
rate-sensitive financial instruments by expected maturity date as of December
31, 2004:

2005 2006 2007 2008 2009 Thereafter Fair Value
-------- -------- -------- -------- -------- -------- ---------
(In thousands)
ASSETS:
Finance receivables(1) ..... $283,581 $168,932 $105,004 $ 59,826 $ 30,360 $ 6,191 $653,894

LIABILITIES:
Warehouse lines
of credit ............... 34,279 -- -- -- -- -- 34,279
Residual interest
financing ............... 19,493 2,711 -- -- -- -- 22,204
Securitization
trust debt .............. 202,713 150,798 94,929 56,342 31,204 6,829 539,749
Weighted average effective
interest rate ........... 2.98% 3.38% 3.93% 4.01% 4.31% 4.01%
Senior secured debt ........ 34,829 25,000 -- -- -- -- 59,829
Subordinated debt .......... 1,000 14,000 -- -- -- -- 15,000
__________

(1) Includes approximately $34.1 million in unfunded Contracts that are
included in Restricted Cash at December 31, 2004 as a result of a
prefunding structure.

Much of the information used to determine fair value is highly subjective. When
applicable, readily available market information has been utilized. However, for
a significant portion of the Company's financial instruments, active markets do
not exist. Therefore, considerable judgments were required in estimating fair
value for certain items. The subjective factors include, among other things, the
estimated timing and amount of cash flows, risk characteristics, credit quality
and interest rates, all of which are subject to change. Since the fair value is
estimated as of the dates shown in the table, the amounts that will actually be
realized or paid at settlement or maturity of the instruments could be
significantly different.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

This report includes Consolidated Financial Statements, notes thereto and an
Independent Auditors' Report, at the pages indicated below. Certain unaudited
quarterly financial information is included in the Notes to Consolidated
Financial Statements, as Note 18.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

On October 16, 2004, the Company notified KPMG LLP ("KPMG") that KPMG's
appointment as the Company's independent auditor would cease upon completion of
the review of the Company's consolidated financial statements as of and for the
three- and nine- month periods ended September 30, 2004. The Audit Committee of
the Board of Directors of the Company approved the decision to terminate such
appointment. KPMG's audit reports on the Company's financial statements for the
most recent two fiscal years, which ended December 31, 2003 and 2002,
respectively, did not contain an adverse opinion or a disclaimer of opinion, nor
were they qualified or modified as to uncertainty, audit scope or accounting
principles.

On November 15, 2004, KPMG completed its review of the Company's consolidated
financial statements as of and for the three- and nine- month periods ended
September 30, 2004. KPMG's appointment as the Company's independent auditor
ended at that time. On November 23, 2004 the Company engaged McGladrey & Pullen,
LLP to perform the audit of the Company's consolidated financial statements of
and for the year ending December 31, 2004.

In connection with its audits of the Company's financial statements for the two
most recent fiscal years, ended December 31, 2002 and 2003, and through November
15, 2004:

a) there were no disagreements between the Company and KPMG on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to KPMG's satisfaction,
would have caused KPMG to make reference to the subject matter of the
disagreements in connection with its opinions on the financial statements; and

b) there were no reportable events (as specified in Item 304(a)(1)(v) of
Regulation S-K).

ITEM 9A. CONTROLS AND PROCEDURES

QUARTERLY EVALUATION OF THE COMPANY'S DISCLOSURE CONTROLS AND INTERNAL CONTROLS

The Company maintains a system of internal controls and procedures designed to
provide reasonable assurance as to the reliability of its published financial
statements and other disclosures included in this report. As of the end of the
period covered by this report, The Company evaluated the effectiveness of the
design and operation of such disclosure controls and procedures. Based upon that
evaluation, the principal executive officer (Charles E. Bradley, Jr.) and the
principal financial officer (Robert E. Riedl) concluded that the disclosure
controls and procedures are effective in recording, processing, summarizing and
reporting, on a timely basis, material information relating to the Company that
is required to be included in its reports filed under the Securities Exchange
Act of 1934. There have been no significant changes in our internal controls
over financial reporting during our most recently completed fiscal quarter that
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

CEO AND CFO CERTIFICATIONS

Immediately following the Signatures section of this Annual Report, there are
two separate forms of "Certifications" of the CEO and the CFO. The first form of
Certification (the Rule 13a-14 Certification) is required by Rule 13a-14 of the
Securities Exchange Act of 1934 (the "Exchange Act"). This Controls and
Procedures section of the Annual Report includes the information concerning the
Controls Evaluation referred to in the Rule 13a-14 Certifications and it should
be read in conjunction with the Rule 13a-14 Certifications for a more complete
understanding of the topics presented.

DISCLOSURE CONTROLS AND INTERNAL CONTROLS

Disclosure Controls are procedures designed to ensure that information required
to be disclosed in our reports filed under the Exchange Act, such as this Annual
Report, is recorded, processed, summarized and reported within the time periods
specified in the U.S. Securities and Exchange Commission's (the "SEC") rules and
forms. Disclosure Controls are also designed to ensure that such information is
accumulated and communicated to our management, including the CEO and CFO, as
appropriate to allow timely decisions regarding required disclosure. Internal
Controls are procedures designed to provide reasonable assurance that (1) our
transactions are properly authorized; (2) our assets are safeguarded against
unauthorized or improper use; and (3) our transactions are properly recorded and
reported, all to permit the preparation of our Consolidated Financial Statements
in conformity with accounting principles generally accepted in the United States
of America.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

The Company's management, including the CEO and CFO, does not expect that our
Disclosure Controls or our Internal Controls will prevent all error and all
fraud. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the control system's objectives
will be met. Further, the design of a control system must reflect the fact that
there are resource constraints, and the benefits of controls must be considered
relative to their costs. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all

control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Controls can also be circumvented by the individual acts of
some persons, by collusion of two or more people, or by management override of
the controls. The design of any system of controls is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions. Over time, controls may become inadequate because of changes
in conditions or deterioration in the degree of compliance with its policies or
procedures. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be detected.

SCOPE OF THE CONTROLS EVALUATION

The evaluation of our Disclosure Controls and our Internal Controls included a
review of the controls' objectives and design, the Company's implementation of
the controls and the effect of the controls on the information generated for use
in this Annual Report. In the course of the Controls Evaluation, we sought to
identify data errors, controls problems or acts of fraud and confirm that
appropriate corrective actions, including process improvements, were being
undertaken. This type of evaluation is performed on a quarterly basis so that
the conclusions of management, including the CEO and CFO, concerning controls
effectiveness can be reported in our Quarterly Reports on Form 10-Q and Annual
Report on Form 10-K. Our Internal Controls are also evaluated by other personnel
in our organization, as well as independent interested third parties such as
financial guaranty insurers or their designees. The overall goals of these
various evaluation activities are to monitor our Disclosure Controls and our
Internal Controls, and to modify them as necessary; our intent is to maintain
the Disclosure Controls and the Internal Controls as dynamic systems that change
as conditions warrant.

Among other matters, we sought in our evaluation to determine whether there were
any "significant deficiencies" or "material weaknesses" in the Company's
Internal Controls, and whether the Company had identified any acts of fraud
involving personnel with a significant role in the Company's Internal Controls.
This information was important both for the Controls Evaluation generally, and
because items 5 and 6 in the Rule 13a-14 Certifications of the CEO and CFO
require that the CEO and CFO disclose that information to our Board's Audit
Committee and our independent auditors, and report on related matters in this
section of the Annual Report. In professional auditing literature, "significant
deficiencies" are referred to as "reportable conditions," which are control
issues that could have a significant adverse effect on the ability to record,
process, summarize and report financial data in the Consolidated Financial
Statements. Auditing literature defines "material weakness" as a particularly
serious reportable condition where the internal control does not reduce to a
relatively low level the risk that misstatements caused by error or fraud may
occur in amounts that would be material in relation to the Consolidated
Financial Statements and the risk that such misstatements would not be detected
within a timely period by employees in the normal course of performing their
assigned functions. We also sought to deal with other controls matters in the
Controls Evaluation, and in each case if a problem was identified, we considered
what revision, improvement and/or correction to make in accordance with our
ongoing procedures.

From the date of the Controls Evaluation to the date of this Annual Report,
there have been no significant changes in Internal Controls or in other factors
that could significantly affect Internal Controls, including any corrective
actions with regard to significant deficiencies and material weaknesses.

CONCLUSIONS

Based upon the Controls Evaluation, our CEO and CFO have concluded that, subject
to the limitations noted above, our Disclosure Controls are effective to ensure
that material information relating to Consumer Portfolio Services, Inc. and its
consolidated subsidiaries is made known to management, including the CEO and
CFO, particularly during the period when our periodic reports are being
prepared, and that our Internal Controls are effective to provide reasonable
assurance that our Consolidated Financial Statements are fairly presented in
conformity with accounting principles generally accepted in the United States of
America.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS

Information regarding directors of the registrant is incorporated by reference
to the registrants definitive proxy statement for its annual meeting of
shareholders to be held in 2005 (the 2005 Proxy Statement). The 2005 Proxy
Statement will be filed not later than April 30, 2005. Information regarding
executive officers of the registrant appears in Part I of this report, and is
incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Incorporated by reference to the 2005 Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Incorporated by reference to the 2005 Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Incorporated by reference to the 2005 Proxy Statement.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Incorporated by reference to the 2005 Proxy Statement.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8K

(a) The financial statements listed above under the caption Index to Financial
Statements are filed as a part of this report. No financial statement schedules
are filed as the required information is inapplicable or the information is
presented in the Consolidated Financial Statements or the related notes.
Separate financial statements of the Company have been omitted as the Company is
primarily an operating company and its subsidiaries are wholly owned and do not
have minority equity interests and/or indebtedness to any person other than the
Company in amounts which together exceed 5% of the total consolidated assets as
shown by the most recent year-end Consolidated Balance Sheet.

The exhibits listed below are filed as part of this report, whether filed
herewith or incorporated by reference to an exhibit filed with the report
identified in the parentheses following the description of such exhibit. Unless
otherwise indicated, each such identified report was filed by or with respect to
the registrant.

Exhibit
Number Description
- ------ -----------

2.1 Agreement and Plan of Merger, dated as of November 18, 2001, by
and among the Registrant, CPS Mergersub, Inc. and MFN Financial
Corporation. (Form 8-K filed on November 19, 2001 by MFN
Financial Corporation).

3.1 Restated Articles of Incorporation (Form 10-KSB dated December
31, 1995)

3.2 Amended and Restated Bylaws (Form 10-K dated December 31, 1997)

4.1 Indenture re Rising Interest Subordinated Redeemable Securities
(RISRS) (Form 8-K filed December 26, 1995)

4.2 First Supplemental Indenture re RISRS (Form 8-K filed December
26, 1995)

4.3 Form of Indenture re 10.50% Participating Equity Notes (PENs)
(Form S-3, no. 333-21289)

4.4 Form of First Supplemental Indenture re PENs (Form S-3, no.
333-21289)

4.5 Third Amended and Restated Securities Purchase Agreement dated as
of January 29, 2004, between the registrant and Levine Leichtman
Capital Partners II, L.P. (LLCP) (Schedule 13D filed by LLCP with
respect to the registrant on February 3, 2004)

4.5.1 Amendment to the Agreement filed as Exhibit 4.5, dated as of
March 25, 2004. (Schedule 13D filed by LLCP with respect to the
registrant on June 4, 2004)

4.5.2 Amendment to the Agreement filed as Exhibit 4.5, dated as of
April 2, 2004. (Schedule 13D filed by LLCP with respect to the
registrant on June 4, 2004)

4.5.3 Amendment to the Agreement filed as Exhibit 4.5, dated as of May
28, 2004. (Schedule 13D filed by LLCP with respect to the
registrant on June 4, 2004)

4.5.4 Amendment to the Agreement filed as Exhibit 4.5, dated as of June
25, 2004. (Schedule 13D filed by LLCP with respect to the
registrant on June 29, 2004)

4.6 Secured Senior Note due February 28, 2003 issued by the
Registrant to Levine Leichtman Capital Partners II, L.P. (Form
8-K filed on March 25, 2002).

4.7 Second Amended and Restated Secured Senior Note due November 30,
2003 issued by the Registrant to Levine Leichtman Capital
Partners II, L.P. (Form 8-K filed on March 25, 2002).

4.8 12.00% Secured Senior Note due 2008 issued by the Registrant to
Levine Leichtman Capital Partners II, L.P. (Form 8-K filed on
March 25, 2002).

4.9 Sale and Servicing Agreement, dated as of March 1, 2002, among
the Registrant, CPS Auto Receivables Trust 2002-A, CPS
Receivables Corp., Systems & Services Technologies, Inc. and Bank
One Trust Company, N.A. (Form 8-K filed on March 25, 2002).

4.10 Indenture, dated as of March 1, 2002, between CPS Auto
Receivables Trust 2002-A and Bank One Trust Company, N.A. (Form
8-K filed on March 25, 2002).

4.11 Third Amended and Restated Secured Senior Note Due 2005 (Schedule
13D filed by LLCP with respect to the registrant on February 3,
2004)

4.12 Amended and Restated Secured Senior Note (Schedule 13D filed by
LLCP with respect to the registrant on February 3, 2004)

4.13 11.75% Secured Senior Note Due 2006 (Schedule 13D filed by LLCP
with respect to the registrant on June 4, 2004)

4.14 11.75% Secured Senior Note Due 2006 (Schedule 13D filed by LLCP
with respect to the registrant on June 29, 2004)

10.1 1991 Stock Option Plan & forms of Option Agreements thereunder
(Form 10-KSB dated March 31, 1994)

10.2 1997 Long-Term Incentive Stock Plan (Form 10-K filed March 10,
1998) (amendment thereto, adopted April 26, 2004, to be filed by
amendment)

10.3 Lease Agreement re Chesapeake Collection Facility (Form 10-K
dated December 31, 1996)

10.4 Lease of Headquarters Building (Form 10-Q dated September 30,
1997)

10.5 Partially Convertible Subordinated Note (Form 10-Q dated
September 30, 1997)

10.13 FSA Warrant Agreement dated November 30, 1998 (Form 10-K dated
December 31, 1998)

10.29 Warrant to Purchase 1,335,000 Shares of Common Stock (Schedule
13D filed on April 21, 1999)

10.31 Agreement dated May 29, 1999 for Sale of Contracts on a Flow
Basis (Form 10-Q dated June 30, 1999)

10.32 Amendment to Master Spread Account Agreement (Form 10-K dated
December 31, 1999)

21 List of subsidiaries of the registrant

23.1 Consent of McGladrey & Pullen, LLP (filed herewith)

23.2 Consent of KPMG Peat Marwick, LLP (filed herewith)

(b) Reports on Form 8-K

The Company filed three reports on Form 8-K during the fourth quarter of the
year ended December 31, 2004:

Date of Report Date Filed Item(s) reported
- -------------- ---------- ----------------

September 30, 2004 October 6, 2004 items 1.01, 2.03, and 9.01

October 16, 2004 October 21, 2004 items 4.01 and 9.01

(amended October 26, 2004)

November 15, 2004 November 19, 2004 items 4.01, 7.01, and 9.01

No financial statements were filed with or as a part of any of such reports.

SIGNATURES AND CERTIFICATIONS OF THE CHIEF EXECUTIVE OFFICER AND THE CHIEF
FINANCIAL OFFICER

The following pages include the Signatures page for this Form10-K, and two
separate Certifications of the Chief Executive Officer (CEO) and the Chief
Financial Officer (CFO) of the company.

The first form of Certification is required by Rule13a-14 (the Rule13a-14
Certification) under the Securities Exchange Act of 1934 (the Exchange Act). The
Rule13a-14 Certification includes references to an evaluation of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures and its internal controls and procedures for financial reporting.
Item 14 of PartIII of this Annual Report presents the conclusions of the CEO and
the CFO about the effectiveness of such controls based on and as of the date of
such evaluation (relating to Item 4 of the Rule13a-14 Certification), and
contains additional information concerning disclosures to the company's Audit
Committee and independent auditors with regard to deficiencies in internal
controls and fraud (Item 5 of the Rule13a-14 Certification) and related matters
(Item 6 of the Rule13a-14 Certification).

The second form of Certification is required by section1350 of chapter 63 of
title 18 of the United States Code.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.

CONSUMER PORTFOLIO SERVICES, INC. (registrant)

March 28, 2005 By: /s/ Charles E. Bradley, Jr.
------------------------------------------
Charles E. Bradley, Jr., President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.

March 28, 2005 /s/ Charles E. Bradley, Jr.
------------------------------------------
Charles E. Bradley, Jr., Director,
President and Chief Executive Officer
(Principal Executive Officer)

March 28, 2005 /s/ Thomas L. Chrystie
------------------------------------------
Thomas L. Chrystie, Director

March 28, 2005 /s/ E. Bruce Fredrikson
------------------------------------------
E. Bruce Fredrikson, Director

March 28, 2005 /s/ John E. McConnaughy, Jr.
------------------------------------------
John E. McConnaughy, Jr., Director

March 28, 2005 /s/ John G. Poole
------------------------------------------
John G. Poole, Director

March 28, 2005 /s/ William B. Roberts
------------------------------------------
William B. Roberts, Director

March 28, 2005 /s/ John C. Warner
------------------------------------------
John C. Warner, Director

March 28, 2005 /s/ Daniel S. Wood
------------------------------------------
Daniel S. Wood, Director

March 28, 2005 /s/ Robert E. Riedl
------------------------------------------
Robert E. Riedl, Chief Financial Officer
(Principal Financial Officer)

March 28, 2005 /s/ Denesh Bharwani
------------------------------------------
Denesh Bharwani, Controller

CERTIFICATION

I, Charles E. Bradley, Jr., certify that:

1. I have reviewed this annual report on Form10-K of Consumer Portfolio
Services, Inc.;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this annual
report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this annual report;

4. The registrants other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules13a-15(e) and 15d-15(e)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in
which this report is being prepared;

(b) Evaluated the effectiveness of the registrants disclosure controls
and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end
of the period covered by this report based on such evaluation; and

(c) Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrant's
most recent fiscal quarter (the registrants fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and

5. The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrants auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):

(a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrants auditors any material weaknesses in
internal controls; and

(b)any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

6. The registrants other certifying officers and I have indicated in this annual
report whether there were significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent to the date
of our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.

March 28, 2005 By: /s/ Charles E. Bradley, Jr.
------------------------------------------
Charles E. Bradley, Jr.
President and Chief Executive Officer

CERTIFICATION

I, Robert E. Riedl, certify that:

1. I have reviewed this annual report on Form10-K of Consumer Portfolio
Services, Inc.;

(c) Disclosed in this report any change in the registrants internal
control over financial reporting that occurred during the registrants
most recent fiscal quarter (the registrant's fourth fiscal quarter in
the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting; and

5. The registrants other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrants board of directors (or persons performing the equivalent functions):

(a)all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

(b)any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants internal
controls; and

March 28, 2005 By: /s/ Robert E. Riedl
----------------------------------------
Robert E. Riedl, Chief Financial Officer

CERTIFICATION

Each of the undersigned hereby certifies, for the purposes of section1350 of
chapter 63 of title 18 of the United States Code, in his capacity as an officer
of Consumer Portfolio Services, Inc., that, to his knowledge, the Annual Report
of Consumer Portfolio Services, Inc. on Form10-K for the period ended
December31, 2004, fully complies with the requirements of Section13(a) of the
Securities Exchange Act of 1934 and that the information contained in such
report fairly presents, in all material respects, the financial condition and
results of operations of Consumer Portfolio Services, Inc.

March 28, 2005 By: /s/ Charles E. Bradley, Jr.
----------------------------------------
Charles E. Bradley, Jr.
President and Chief Executive Officer

March 28, 2005 By: /s/ Robert E. Riedl
----------------------------------------
Robert E. Riedl, Chief Financial Officer

INDEX TO FINANCIAL STATEMENTS

PAGE
REFERENCE
---------

Report of Independent Registered Public Accounting Firm McGladrey & Pullen LLP.......................... F-2

Report of Independent Registered Public Accounting Firm KPMG, LLP....................................... F-3

Consolidated Balance Sheets as of December 31, 2004 and 2003............................................. F-4

Consolidated Statements of Operations for the years ended December 31, 2004, 2003, and 2002.............. F-5

Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31,
2004, 2003, and 2002................................................................................... F-6

Consolidated Statements of Shareholders Equity for the years ended December 31, 2004, 2003,
and 2002............................................................................................... F-7

Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003, and 2002.............. F-8

Notes to Consolidated Financial Statements for the years ended December 31, 2004, 2003, and 2002......... F-10

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

Consumer Portfolio Services, Inc.:

We have audited the consolidated balance sheet of Consumer Portfolio Services,
Inc. and subsidiaries (the Company) as of December 31, 2004 and the related
consolidated statements of operations, comprehensive income (loss), shareholders
equity, and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States of America). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consumer Portfolio
Services, Inc. and subsidiaries as of December 31, 2004, and the results of
their operations and their cash flows for the year then ended, in conformity
with U.S. generally accepted accounting principles.

/s/ McGladrey & Pullen, LLP

Irvine, California
March 16, 2005, except for the last paragraph of note 8 as to which
the date is March 22, 2005.

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Consumer Portfolio Services, Inc.:

We have audited the accompanying consolidated balance sheet of Consumer
Portfolio Services, Inc. and subsidiaries (the Company) as of December 31, 2003,
and the related consolidated statements of operations, comprehensive income
(loss), shareholders' equity, and cash flows for each of the years in the
two-year period ended December 31, 2003. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Consumer Portfolio
Services, Inc. and subsidiaries as of December 31, 2003, and the results of
their operations and their cash flows for each of the years in the two-year
period ended December 31, 2003, in conformity with U.S. generally accepted
accounting principles.

/s/ KPMG LLP

Orange County, California
March 15, 2004

F-3

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)

DECEMBER 31, DECEMBER 31,
2004 2003
------------- -------------

ASSETS
Cash $ 14,366 $ 33,209
Restricted cash 125,113 67,277
Finance receivables 592,806 302,078
Less: Allowance for finance credit losses (42,615) (35,889)
------------- -------------
Finance receivables, net 550,191 266,189

Servicing fees receivable 2,791 3,942
Residual interest in securitizations 50,430 111,702
Furniture and equipment, net 1,567 826
Deferred financing costs 5,096 1,529
Accrued interest receivable 6,411 2,901
Other assets 10,634 4,895
------------- -------------
$ 766,599 $ 492,470
============= =============

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Accounts payable and accrued expenses $ 18,153 $ 22,920
Warehouse lines of credit 34,279 33,709
Tax liabilities, net 2,978 2,768
Notes payable 1,421 3,330
Residual interest financing 22,204 --
Securitization trust debt 542,815 245,118
Senior secured debt 59,829 49,965
Subordinated debt 15,000 35,000
Related party debt -- 17,500
------------- -------------
696,679 410,310
COMMITMENTS AND CONTINGENCIES
Shareholders' Equity
Preferred stock, $1 par value;
authorized 5,000,000 shares; none issued -- --
Series A preferred stock, $1 par value;
authorized 5,000,000 shares;
3,415,000 shares issued; none outstanding -- --
Common stock, no par value; authorized
30,000,000 shares; 21,471,478 and 20,588,924
shares issued and outstanding at December 31, 2004 and
December 31, 2003, respectively 66,283 64,397
Retained earnings 5,104 20,992
Accumulated other comprehensive loss (1,017) (2,426)
Deferred compensation (450) (803)
------------- -------------
69,920 82,160
------------- -------------
$ 766,599 $ 492,470
============= =============

See accompanying Notes to Consolidated Financial Statements.

F-4

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------

REVENUES:
Net gain on sale of contracts $ -- $ 10,421 $ 21,518
Interest income 105,818 58,164 48,644
Servicing fees 12,480 17,058 14,621
Other income 14,394 19,343 13,605
------------- ------------- -------------
132,692 104,986 98,388
------------- ------------- -------------

EXPENSES:
Employee costs 38,173 37,141 37,778
General and administrative 21,293 21,271 20,131
Interest 32,147 23,861 23,925
Provision for credit losses 32,574 11,390 --
Impairment loss on residual asset 11,750 4,052 5,074
Marketing 8,338 5,380 6,253
Occupancy 3,520 3,930 4,027
Depreciation and amortization 785 1,000 1,138
------------- ------------- -------------
148,580 108,025 98,326
------------- ------------- -------------
Income (loss) before income tax benefit (15,888) (3,039) 62
Income tax benefit -- (3,434) (2,934)
------------- ------------- -------------
Income (loss) before extraordinary item (15,888) 395 2,996
Extraordinary item, unallocated negative goodwill -- -- 17,412
------------- ------------- -------------
Net income (loss) $ (15,888) $ 395 $ 20,408
============= ============= =============

Earnings (loss) per share before extraordinary item:
Basic $ (0.75) $ 0.02 $ 0.15
Diluted (0.75) 0.02 0.14

Earnings per share, extraordinary item:
Basic $ -- $ -- $ 0.87
Diluted -- -- 0.83

Earnings (loss) per share after extraordinary item:
Basic $ (0.75) $ 0.02 $ 1.03
Diluted (0.75) 0.02 0.97

Number of shares used in computing earnings
(loss) per share:
Basic 21,111 20,263 19,902
Diluted 21,111 21,578 20,987

See accompanying Notes to Consolidated Financial Statements.

F-5

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------

Net income (loss) $ (15,888) $ 395 $ 20,408
Other comprehensive income (loss):
Minimum pension liability, net of tax 1,409 (832) (1,594)
------------- ------------- -------------
Comprehensive income (loss) $ (14,479) $ (437) $ 18,814
============= ============= =============

See accompanying Notes to Consolidated Financial Statements.

F-6

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)

Accumulated
Other
Common Stock Comprehensive Deferred Retained
Shares Amount Loss Compensation Earnings Total
------------- ------------- ------------- ------------- ------------- -------------

Balance at December 31, 2001 19,281 $ 61,874 $ -- $ (377) $ 189 $ 61,686

Common stock issued upon exercise
of options, including tax benefit 1,255 893 -- -- -- 893
Purchase of common stock (8) (15) -- -- -- (15)
Pension benefit obligation -- -- (1,594) -- -- (1,594)
Increase in deferred compensation
on stock options -- 1,177 -- (1,177) -- --
Amortization of stock compensation -- -- -- 1,196 -- 1,196
Net income -- -- -- -- 20,408 20,408
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2002 20,528 63,929 (1,594) (358) 20,597 82,574

Common stock issued upon exercise
of options, including tax benefit 609 974 -- -- -- 974
Purchase of common stock (548) (1,195) -- -- -- (1,195)
Pension benefit obligation -- -- (832) -- -- (832)
Repurchase of warrants issued -- (896) -- -- -- (896)
Increase in deferred compensation
on stock options -- 1,585 -- (1,585) -- --
Amortization of stock compensation -- -- -- 1,140 -- 1,140
Net income -- -- -- -- 395 395
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2003 20,589 64,397 (2,426) (803) 20,992 82,160

Common stock issued upon exercise
of options, including tax benefit 575 1,079 -- -- -- 1,079
Common stock issued upon
conversion of debt 333 1,000 -- -- -- 1,000
Purchase of common stock (26) (111) -- -- -- (111)
Pension benefit obligation -- -- 1,409 -- -- 1,409
Increase in deferred compensation
on stock options -- (82) -- 82 -- --
Amortization of stock compensation -- -- -- 271 -- 271
Net loss -- -- -- -- (15,888) (15,888)
------------- ------------- ------------- ------------- ------------- -------------
Balance at December 31, 2004 21,471 $ 66,283 $ (1,017) $ (450) $ 5,104 $ 69,920
============= ============= ============= ============= ============= =============

See accompanying Notes to Consolidated Financial Statements.

F-7

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (15,888) $ 395 $ 20,408
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Reversal of restructuring accrual (1,287) -- --
Impairment loss on residual asset 11,750 4,052 5,074
Amortization of deferred acquisition fees (6,725) (870) --
Amortization of discount on Class B Notes 588 -- --
Extraordinary gain, excess of assets acquired over purchase price -- -- (17,412)
Depreciation and amortization 785 1,000 1,138
Amortization of deferred financing costs 3,479 2,695 4,547
Provision for credit losses 32,574 11,916 2,639
NIR (gains) losses recognized on sale of contracts -- (4,381) (16,873)
Write off of related party debt -- -- 669
Deferred compensation 271 1,140 1,196
Releases of cash from Trusts to Company 21,357 25,934 60,393
Initial deposits to Trusts -- (18,736) (16,749)
Net deposits to Trusts to increase Credit Enhancement (2,858) (20,867) (24,236)
Interest income on residual assets (4,633) (16,178) (15,392)
Cash received from retained interests 54,154 45,644 19,202
Changes in assets and liabilities:
Payments on restructuring accrual (1,969) (1,804) (3,274)
Restricted cash (76,336) (30,641) 17,940
Purchases of contracts held for sale -- (182,045) (463,253)
Proceeds received on contracts held for sale -- 283,423 566,124
Other assets (5,415) 6,936 5,021
Accounts payable and accrued expenses 715 (1,559) (12,839)
Tax liabilities, net (606) (7,162) 12,570
------------- ------------- -------------
Net cash provided by operating activities 9,956 98,892 146,893
------------- ------------- -------------

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of finance receivables held for investment (505,977) (175,275) --
Purchases of note receivable (2,799) -- --
Proceeds received on finance receivables held for investment 196,126 6,611 --
Purchase of furniture and equipment (1,408) (93) (285)
Purchase of subsidiary, net of cash acquired -- (10,181) (29,467)
------------- ------------- -------------
Net cash used in investing activities (314,058) (178,938) (29,752)
------------- ------------- -------------

Cash flows from financing activities:
Proceeds from issuance of residual financing debt 44,000 -- --
Proceeds from issuance of securitization trust debt 474,720 154,375 --
Proceeds from issuance of senior secured debt 25,000 25,000 46,242
Net proceeds from warehouse lines of credit 570 31,332 --
Repayment of residual interest financing debt (21,796) -- --
Repayment of securitization trust debt (177,611) (96,484) (85,293)
Repayment of senior secured debt (15,137) (25,107) (22,170)
Repayment of subordinated debt (20,000) (1,000) (23,489)
Repayment of notes payable (1,909) (3,748) (1,326)
Repayment of related party debt (16,500) -- --
Payment of financing costs (7,046) (2,553) (1,037)
Repurchase of common stock (111) (1,195) (15)
Repurchase of warrants issued -- (896) --
Exercise of options and warrants 1,079 584 324
------------- ------------- -------------
Net cash provided by (used in) financing activities 285,259 80,308 (86,764)
------------- ------------- -------------
Increase (decrease) in cash (18,843) 262 30,377

Cash at beginning of period 33,209 32,947 2,570
------------- ------------- -------------
Cash at end of period $ 14,366 $ 33,209 $ 32,947
============= ============= =============

See accompanying Notes to Consolidated Financial Statements.

F-8

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

YEAR ENDED DECEMBER 31,
------------------------------------------------
2004 2003 2002
------------- ------------- -------------

Supplemental disclosure of cash flow information:
Cash paid (received) during the period for:
Interest $ 28,228 $ 18,677 $ 19,255
Income taxes 420 3,728 (15,565)

Supplemental disclosure of non-cash investing and financing activities:
Stock-based compensation $ 271 $ 1,140 $ 1,196
Conversion of related party debt to common stock (1,000) -- --
Pension benefit obligation, net (1,409) 832 1,594
Deferred income taxes -- 944 1,632
Purchase of common stock with notes -- -- 479

See accompanying Notes to Consolidated Financial Statements.

F-9

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

DESCRIPTION OF BUSINESS

Consumer Portfolio Services, Inc. (CPS) was incorporated in California on March
8, 1991. CPS and its subsidiaries (collectively, the Company) specialize in
purchasing, selling and servicing retail automobile installment sale contracts
(Contracts) originated by licensed motor vehicle dealers (Dealers) located
throughout the United States. The Company specializes in Contracts with obligors
who generally would not be expected to qualify for traditional financing, such
as that provided by commercial banks or automobile manufacturers captive finance
companies.

ACQUISITIONS

On March 8, 2002, the Company acquired MFN Financial Corporation and its
subsidiaries in a merger (the MFN Merger). On May 20, 2003, the Company acquired
TFC Enterprises, Inc. and its subsidiaries in a second merger (the TFC Merger).
Each merger was accounted for as a purchase. MFN Financial Corporation and its
subsidiaries (MFN) and TFC Enterprises, Inc. and its subsidiaries (TFC) were
engaged in businesses similar to that of the Company: buying Contracts from
Dealers, repackaging those Contracts in securitization transactions, and
servicing those Contracts. MFN ceased acquiring Contracts in March 2002; TFC
continues to acquire Contracts under its TFC Programs.

On April 2, 2004, the Company purchased a portfolio of Contracts and certain
other assets (the SeaWest Asset Acquisition) from SeaWest Financial Corporation
(SeaWest). In addition, the Company was named the successor servicer for three
term securitization transactions originally sponsored by SeaWest (the SeaWest
Third Party Portfolio). The Company does not intend to offer financing programs
similar to those previously offered by SeaWest.

RECENT DEVELOPMENTS

In July 2003, the Company agreed with the other parties to its continuous, or
warehouse, securitization facilities to amend the terms of such facilities. The
effect of the amendments was to cause use of those facilities for Contracts
purchased in July 2003 and in the future to be treated for financial accounting
purposes as borrowings secured by pledged Contracts, rather than as sales of
such Contracts.

In addition, the Company announced in August 2003 that it would structure its
future term securitization transactions so that they will be treated for
financial accounting purposes as borrowings secured by receivables, rather than
as sales of receivables. The new structure for the warehouse facilities
described in the preceding paragraph and the intended future structure of the
Company's term securitizations has affected and will affect the way in which the
transactions are reported. The major effects are these: (i) the finance
receivables will be shown as assets of the Company on its balance sheet; (ii)
the debt issued in the transactions will be shown as indebtedness of the
Company; (iii) cash deposited to enhance the credit of the securitization
transactions will be shown as restricted cash on the Company's balance sheet;
(iv) cash collected from borrowers and other sources related to the receivables
prior to making the required payments under the warehouse and term
securitization transactions is also shown as restricted cash on the Company's
balance sheet; (v) the servicing fee that the Company receives in connection
with such receivables will be recorded as a portion of the interest earned on
such receivables in the Company's statements of operations; (vi) the Company
will initially and periodically record as expense a provision for estimated
credit losses on the receivables in the Company's statements of operations; and
(vii) the portion of scheduled payments on the receivables and debt representing
interest will be recorded as interest income and interest expense in the
Company's statements of operations.

F-10

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PRINCIPLES OF CONSOLIDATION

The Consolidated Financial Statements include the accounts of Consumer Portfolio
Services, Inc. and its wholly-owned subsidiaries, certain of which are Special
Purpose Subsidiaries (SPS), formed to accommodate the structures under which the
Company purchases and securitizes its Contracts. The Consolidated Financial
Statements also include the accounts of CPS Leasing, Inc., an 80% owned
subsidiary. All significant intercompany balances and transactions have been
eliminated in consolidation.

CASH AND CASH EQUIVALENTS

For purposes of the statements of cash flows, the Company considers all highly
liquid debt instruments with original maturities of three months or less to be
cash equivalents. Cash equivalents consist of cash on hand and due from banks
and money market accounts. The Company's cash is primarily deposited at three
financial institutions. The Company periodically maintains cash due from banks
in excess of the banks insured deposit limits. The Company does not believe it
is exposed to any significant credit risk on these deposits. As part of certain
financial covenants related to debt facilities, the Company is required to
maintain a minimum unrestricted cash balance.

FINANCE RECEIVABLES, NET OF UNEARNED INCOME

Finance receivables are presented at cost. All Finance receivable Contracts are
held for investment and include automobile installment sales contracts on which
interest is pre-computed and added to the amount financed. The interest on such
Contracts is included in unearned finance charges. Unearned finance charges are
amortized using the interest method over the remaining period to contractual
maturity. Generally, payments received on finance receivables are restricted to
certain securitized pools, and the related Contracts cannot be resold. Finance
receivables are charged off pursuant to the controlling documents of certain
securitized pools, generally before they become contractually delinquent five
payments. Contracts that are deemed uncollectible prior to the maximum
delinquency period are charged off immediately. Management may authorize an
extension of payment terms if collection appears likely during the next calendar
month.

The Company's portfolio of finance receivables is comprised of smaller-balance
homogeneous Contracts that are collectively evaluated for impairment on a
portfolio basis. The Company reports delinquency on a contractual basis. Once a
Contract becomes greater than 90 days delinquent, the Company does not recognize
additional interest income until the borrower under the Contract makes
sufficient payments to be less than 90 days delinquent. Any payments received by
a borrower that is greater than 90 days delinquent is first applied to accrued
interest and then to principal reduction.

ALLOWANCE FOR FINANCE CREDIT LOSSES

In order to estimate an appropriate allowance for losses to be incurred on
finance receivables, the Company uses a loss allowance methodology commonly
referred to as static pooling, which stratifies its finance receivable portfolio
into separately identified pools. Using analytical and formula driven
techniques, the Company estimates an allowance for finance credit losses, which
management believes is adequate for probable credit losses that can be

F-11

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

reasonably estimated in its portfolio of finance receivable Contracts. Provision
for loss is charged to the Company's Consolidated Statement of Operations. Net
losses incurred on finance receivables are charged to the allowance. Management
evaluates the adequacy of the allowance by examining current delinquencies, the
characteristics of the portfolio, the value of the underlying collateral and
historical loss trends. As conditions change, the Company's level of
provisioning and/or allowance may change as well.

CONTRACT ACQUISITION FEES

Upon purchase of a Contract from a Dealer, the Company generally charges or
advances the Dealer an acquisition fee. For Contracts securitized in pools which
were structured as sales for financial accounting purposes, the acquisition fees
associated with Contract purchases were deferred until the Contracts were
securitized, at which time the deferred acquisition fees were recognized as a
component of the gain on sale. For Contracts purchased and securitized in pools
which are structured as secured financings for financial accounting purposes,
the acquisition fees associated with Contract purchases are deferred and
recognized as interest income over the life of the Contracts on a level yield
basis. The Company also charged the purchaser an origination fee for those
Contracts that were sold on a flow basis. Those fees were recognized at the time
the Contracts were sold and were also a component of the gain on sale.

REPOSSESSED ASSETS

If a customer fails to make or keep promises for payments, or if the customer is
uncooperative or attempts to evade contact or hide the vehicle, a supervisor
will review the collection activity relating to the account to determine if
repossession of the vehicle is warranted. Generally, such a decision will occur
between the 45th and 90th day past the customers payment due date, but could
occur sooner or later, depending on the specific circumstances. At the time the
vehicle is repossessed the Company will stop accruing interest in this Contract,
and reclassify the remaining Contract balance to other assets. In addition the
Company will apply a specific reserve to this Contract so that the net balance
represents the estimated fair value less costs to sell.

FLOW PURCHASE PROGRAM

Through May 2002, the Company purchased Contracts for immediate and outright
resale to non-affiliated third parties. The Company sold such Contracts for a
mark-up above what the Company paid the Dealer. In such sales, the Company made
certain representations and warranties to the purchasers, normal in the
industry, which related primarily to the legality of the sale of the underlying
motor vehicle and to the validity of the security interest being conveyed to the
purchaser. Those representations and warranties were generally similar to the
representations and warranties given by the originating Dealer to the Company.
In the event of a breach of such representations or warranties, the Company may
incur liabilities in favor of the purchaser(s) of the Contracts and there can be
no assurance that the Company would be able to recover, in turn, against the
originating Dealer(s).

TREATMENT OF SECURITIZATIONS

Gain on sale may be recognized on the disposition of Contracts either outright
or in securitization transactions. In those securitization transactions that
were treated as sales for financial accounting purposes, the Company, or a
wholly-owned, consolidated subsidiary of the Company, retains a residual
interest in the Contracts that were sold to a wholly-owned, unconsolidated
special purpose subsidiary. The Company's securitization transactions include
term securitizations (the purchaser holds the Contracts for substantially their
entire term) and continuous or warehouse securitizations (which finance the
acquisition of the Contracts for future sale into term securitizations).

F-12

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2004 and 2003 the line item Residual interest in
securitizations on the Company's Consolidated Balance Sheet represents the
residual interests in certain term securitizations but no residual interest in
warehouse securitizations, because the Company's warehouse securitizations were
restructured in July 2003 as secured financings. All subsequent term
securitizations were also structured as secured financings. The warehouse
securitizations are accordingly reflected in the line items Finance receivables
and Warehouse lines of credit on the Company's Consolidated Balance Sheet, and
the term securitizations are reflected in the line items Finance receivables and
Securitization trust debt. The Residual interest in securitizations represents
the discounted sum of expected future cash flows from securitization trusts.
Accordingly, the valuation of the residual is heavily dependent on estimates of
future performance of the Contracts included in the term securitizations.

The Company's securitization structure has generally been as follows:

The Company sells Contracts it acquires to a wholly-owned Special Purpose
Subsidiary (SPS), which has been established for the limited purpose of buying
and reselling the Company's Contracts. The SPS then transfers the same Contracts
to another entity, typically a statutory trust (Trust). The Trust issues
interest-bearing asset-backed securities ( Notes), in a principal amount equal
to or less than the aggregate principal balance of the Contracts. The Company
typically sells these Contracts to the Trust at face value and without recourse,
except that representations and warranties similar to those provided by the
Dealer to the Company are provided by the Company to the Trust. One or more
investors purchase the Notes issued by the Trust; the proceeds from the sale of
the Notes are then used to purchase the Contracts from the Company. The Company
may retain or sell subordinated Notes issued by the Trust or a related entity.
The Company purchases a financial guaranty insurance policy, guaranteeing timely
payment of principal and interest on the senior Notes, from an insurance company
(a Note Insurer). In addition, the Company provides Credit Enhancement for the
benefit of the Note Insurer and the investors in the form of an initial cash
deposit to a bank account (a Spread Account) held by the Trust, in the form of
overcollateralization of the Notes, where the principal balance of the Notes
issued is less than the principal balance of the Contracts, in the form of
subordinated Notes, or some combination of such Credit Enhancements. The
agreements governing the securitization transactions (collectively referred to
as the Securitization Agreements) require that the initial level of Credit
Enhancement be supplemented by a portion of collections from the Contracts until
the level of Credit Enhancement reaches specified levels which are then
maintained. The specified levels are generally computed as a percentage of the
principal amount remaining unpaid under the related Contracts. The specified
levels at which the Credit Enhancement is to be maintained will vary depending
on the performance of the portfolios of Contracts held by the Trusts and on
other conditions, and may also be varied by agreement among the Company, the
SPS, the Note Insurers and the trustee. Such levels have increased and decreased
from time to time based on performance of the various portfolios, and have also
varied by Securitization Agreement. The Securitization Agreements generally
grant the Company the option to repurchase the sold Contracts from the Trust
when the aggregate outstanding balance of the Contracts has amortized to a
specified percentage of the initial aggregate balance.

The prior securitizations that were treated as sales for financial accounting
purposes differ from secured financings in that the Trust to which the SPS sold
the Contracts met the definition of a qualified special purpose entity under
Statement of Financial Accounting Standards No. 140 (SFAS 140). As a result,
assets and liabilities of the Trust are not consolidated into the Company's
Consolidated Balance Sheet.

The Company's warehouse securitization structures are similar to the above,
except that (i) the SPS that purchases the Contracts pledges the Contracts to
secure promissory notes which it issues, (ii) the promissory notes are in an
aggregate principal amount of not more than 73.0% to 73.5% of the aggregate
principal balance of the Contracts (that is, at least 26.5%
overcollateralization), and (iii) no increase in the required amount of Credit
Enhancement is contemplated unless certain portfolio performance tests are
breached. During the quarter ended September 30, 2003 the warehouse
securitizations related to the CPS Programs were amended to cause the
transactions to be treated as secured financings for financial accounting
purposes. The Contracts held by the warehouse SPSs and the promissory notes that
they issue are therefore included in the Company's Consolidated Financial
Statements as of December 31, 2004 and 2003 as assets and liabilities,
respectively.

F-13

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Under the prior securitizations structured as sales for financial accounting
purposes, the Company removed from its Consolidated Balance Sheet the Contracts
sold and added to its Consolidated Balance Sheet (i) the cash received, if any,
and (ii) the estimated fair value of the ownership interest that the Company
retains in Contracts sold in the securitization. That retained or residual
interest (the Residual) consists of (a) the cash held in the Spread Account, if
any, (b) overcollateralization, if any, (c) subordinated Notes retained, if any,
and (d) receivables from Trust, which include the net interest receivables
(NIRs). NIRs represent the estimated discounted cash flows to be received from
the Trust in the future, net of principal and interest payable with respect to
the Notes, and certain expenses. The excess of the cash received and the assets
retained by the Company over the carrying value of the Contracts sold, less
transaction costs, equals the net gain on sale of Contracts recorded by the
Company. Until the maturity of these transactions, the Company's Consolidated
Balance Sheet will reflect securitization transactions structured both as sales
and as secured financings.

With respect to securitizations structured as sales for financial accounting
purposes, the Company allocates its basis in the Contracts between the Notes
sold and the Residuals retained based on the relative fair values of those
portions on the date of the sale. The Company recognizes gains or losses
attributable to the change in the estimated fair value of the Residuals. Gains
in fair value are recognized in the income statement with losses being recorded
as an impairment loss in the income statement. The Company is not aware of an
active market for the purchase or sale of interests such as the Residuals;
accordingly, the Company determines the estimated fair value of the Residuals by
discounting the amount of anticipated cash flows that it estimates will be
released to the Company in the future (the cash out method), using a discount
rate that the Company believes is appropriate for the risks involved. The
anticipated cash flows include collections from both current and charged off
receivables. The Company has used an effective pre-tax discount rate of 14% per
annum except for certain collections from charged off receivables related to the
Company's securitizations in 2001 and later where the Company has used a
discount rate of 25%.

F-14

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

amount and timing of the estimated cash flows. The Company estimates prepayments
by evaluating historical prepayment performance of comparable Contracts. As of
December 31, 2004 the Company used prepayment estimates of approximately 20.0%
to 30.5% cumulatively over the lives of the related Contracts. The Company
estimates defaults and default loss severity using available historical loss
data for comparable Contracts and the specific characteristics of the Contracts
purchased by the Company. The Company estimates recovery rates of previously
charged off receivables using available historical recovery data. In valuing the
Residuals as of December 31, 2004, the Company estimates that charge-offs as a
percentage of the original principal balance will approximate 17.2% to 26.3%
cumulatively over the lives of the related Contracts, with recovery rates
approximating 3.2% to 5.8% of the original principal balance.

In all the Company's term securitizations, whether treated as secured financings
or as sales, the Company has transferred the receivables (through a subsidiary)
to the securitization Trust. The difference between the two structures is that
in securitizations that are treated as secured financings the Company reports
the assets and liabilities of the securitization Trust on its Consolidated
Balance Sheet. Under both structures the Noteholders and the related
securitization Trusts have no recourse to the Company for failure of the
Contract obligors to make payments on a timely basis. The Company's Residuals,
however, are subordinate to the Notes until the Noteholders are fully paid, and
the Company is therefore at risk to that extent.

SERVICING

The Company considers the contractual servicing fee received on its managed
portfolio held by non-consolidated subsidiaries to approximate adequate
compensation. As a result, no servicing asset or liability has been recognized.
Servicing fees received on its managed portfolio held by non-consolidated
subsidiaries are reported as income when earned. Servicing fees received on its
managed portfolio held by consolidated subsidiaries are included in interest
income when earned. Servicing costs are charged to expense as incurred.
Servicing fees receivable represent fees earned but not yet remitted to the
Company by the trustee.

FURNITURE AND EQUIPMENT

Furniture and equipment are stated at cost net of accumulated depreciation. The
Company calculates depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to five years.
Assets held under capital leases and leasehold improvements are amortized over
the lesser of the estimated useful lives of the assets or the related lease
terms. Amortization expense on assets acquired under capital lease is included
with depreciation expense on Company owned assets.

F-15

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF

The Company accounts for long-lived assets in accordance with the provisions of
SFAS No. 144, Accounting for the Impairment of Long-Lived Assets. This Statement
requires that long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. Recoverability of assets to
be held and used is measured by a comparison of the carrying amount of an asset
to future net cash flows expected to be generated by the asset. If such assets
are considered to be impaired, the impairment to be recognized is measured by
the amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of carrying
amount or fair value less costs to sell.

OTHER INCOME

Other Income consists primarily of recoveries on previously charged off MFN
contracts. These Contracts were acquired in the MFN acquisition. No amounts were
allocated for these assets acquired at the time of the acquisition. These
recoveries totaled $8.0 million, $12.2 million and $10.5 million for the years
ended December 31, 2004, 2003 and 2002, respectively.

EARNINGS PER SHARE

The following table illustrates the computation of basic and diluted earnings
(loss) per share:

YEAR ENDED DECEMBER 31,
------------------------------------------------
2004 2003 2002
------------- ------------- -------------
(In thousands, except per share data)

Numerator:
Numerator for basic and diluted earnings (loss) per
share before extraordinary item .............................. $ (15,888) $ 395 $ 2,996
============= ============= =============
Denominator:
Denominator for basic earnings (loss) per share before
extraordinary item - weighted average number of
common shares outstanding during the year .................... $ 21,111 20,263 19,902
Incremental common shares attributable to exercise
of outstanding options and warrants .......................... $ -- 1,315 1,085
------------- ------------- -------------
Denominator for diluted earnings (loss) before
extraordinary item per share ................................. 21,111 21,578 20,987
============= ============= =============
Basic earnings (loss) per share before extraordinary item ....... $ (0.75) $ 0.02 $ 0.15
============= ============= =============
Diluted earnings (loss) per share before extraordinary item ..... $ (0.75) $ 0.02 $ 0.14
============= ============= =============

Incremental shares of 1.1 million related to the conversion of subordinated debt
have been excluded from the calculation for the years ended December 31, 2003
and 2002, because the impact of assumed conversion of such subordinated debt is
anti-dilutive. Incremental shares of 1.8 million shares related to stock options
have been excluded from the diluted earnings (loss) per share calculation for
the year ended December 31, 2004 because the impact is anti-dilutive.

F-16

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DEFERRAL AND AMORTIZATION OF DEBT ISSUANCE COSTS

Costs related to the issuance of debt are amortized on a level yield basis over
the shorter of the actual or expected term of the related debt.

INCOME TAXES

In determining the possible realization of deferred tax assets, future taxable
income from the following sources are considered: (a) the reversal of taxable
temporary differences, (b) future operations exclusive of reversing temporary
differences, and (c) tax planning strategies that, if necessary, would be
implemented to accelerate taxable income into periods in which operating losses
might otherwise expire.

PURCHASES OF COMPANY STOCK

The Company records purchases of its own common stock at cost.

STOCK OPTION PLAN

As permitted by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), the Company accounts for
stock-based employee compensation plans in accordance with Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees and related
interpretations, whereby stock options are recorded at intrinsic value equal to
the excess of the share price over the exercise price at the date of grant. The
Company provides the pro forma net income (loss), pro forma earnings (loss) per
share, and stock based compensation plan disclosure requirements set forth in
SFAS No. 123. The Company accounts for repriced options as variable awards.

The per share weighted-average fair value of stock options granted during the
years ended December 31, 2004, 2003 and 2002, was $2.30, $2.09, and $1.39,
respectively, at the date of grant. That fair value was computed using the
Black-Scholes option-pricing model with the following weighted average
assumptions:

YEAR ENDED DECEMBER 31,
-----------------------------------
2004 2003 2002
--------- --------- ---------

Expected life (years) ................. 6.50 7.63 8.21
Risk-free interest rate ............... 4.48% 4.16% 4.19%
Volatility ............................ 54.65% 100.82% 107.56%
Expected dividend yield ............... -- -- --

F-17

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Compensation cost has been recognized for certain stock options in the
Consolidated Financial Statements in accordance with APB Opinion No. 25. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under Statement of Financial Accounting Standards No. 123
(SFAS 123), Accounting for Stock Based Compensation, the Company's net income
(loss) and earnings (loss) per share would have been adjusted to the pro forma
amounts indicated below.

YEAR ENDED DECEMBER 31,
-----------------------------------------------
2004 2003 2002
------------- ------------- -------------
(In thousands, except per share data)

Net income (loss)
As reported .............................. $ (15,888) $ 395 $ 20,408
Pro forma ................................... (16,808) 175 20,109
Earnings (loss) per share - basic
As reported .............................. $ (0.75) $ 0.02 $ 1.03
Pro forma ................................... (0.80) 0.01 1.01
Earnings (loss) per share - diluted
As reported .............................. $ (0.75) $ 0.02 $ 0.97
Pro forma ................................... (0.80) 0.01 0.96

SEGMENT REPORTING

Operations are managed and financial performance is evaluated on a Company-wide
basis by a chief decision maker. Accordingly, all of the Company's operations
are aggregated in one reportable operating segment.

NEW ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standards Board (FASB) published FASB
Statement No. 123 (revised 2004), Share-Based Payment (FAS 123(R) or the
Statement). FAS 123 (R) requires that the compensation cost relating to
share-based payment transactions, including grants of employee stock options, be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. FAS 123(R) permits entities
to use any option-pricing model that meets the fair value objective in the
Statement. Modifications of share-based payments will be treated as replacement
awards with the cost of the incremental value recorded in the financial
statements.

In December 2003, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position No. 03-3 (SOP 03-3), Accounting for Certain Loans
or Debt Securities Acquired in a Transfer. SOP 03-3 addresses the accounting for
differences between contractual cash flows and the cash flows expected to be
collected from purchased loans or debt securities if those differences are
attributable, in part, to credit quality. SOP 03-3 requires purchased loans and
debt securities to be recorded initially at fair value based on the present
value of the cash flows expected to be collected with no carryover of any
valuation allowance previously recognized by the seller. Interest income should

F-18

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

be recognized based on the effective yield from the cash flows expected to be
collected. To the extent that the purchased loans or debt securities experience
subsequent deterioration in credit quality, a valuation allowance would be
established for any additional cash flows that are not expected to be received.
However, if more cash flows subsequently are expected to be received than
originally estimated, the effective yield would be adjusted on a prospective
basis. SOP 03-3 will be effective for loans and debt securities acquired after
December 31, 2004. The Company's finance receivables are acquired shortly after
origination and there is no credit deterioration during the time between
origination of the finance receivable and purchase by the Company. Accordingly,
management does not expect the adoption of this statement to have a material
impact on the Company's consolidated financial statements.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the financial statements, as well as the reported
amounts of income and expenses during the reported periods. Specifically, a
number of estimates were made in connection with determining an appropriate
allowance for finance credit losses, valuing the Residuals, computing the
related gain on sale on the transactions that created the Residuals, and the
recording of the deferred tax asset valuation allowance. Actual results could
differ from those estimates depending on the future performance of the related
Contracts.

RECLASSIFICATION

Certain amounts for the prior years have been reclassified to conform to the
current years presentation.

(2) ACQUISITIONS

ACQUISITION OF MFN FINANCIAL CORPORATION

On March 8, 2002, CPS acquired 100% of MFN Financial Corporation, a Delaware
corporation (MFN) and its subsidiaries, by the merger (the MFN Merger) of a
direct whollyowned subsidiary of CPS with and into MFN. MFN thus became a
wholly-owned subsidiary of CPS, and CPS thus acquired the assets of MFN, which
consisted principally of interests in automobile installment sales finance
Contracts and the facilities for originating and servicing such Contracts. The
MFN Merger was accounted for as a purchase.

MFN, through its primary operating subsidiary, Mercury Finance Company LLC, was
in the business of purchasing automobile installment sales finance Contracts
from Dealers, and securitizing and servicing such Contracts. CPS continues to
use the assets acquired in the MFN Merger in the automobile finance business,
but has disposed of a portion of such assets. MFN has ceased to purchase
automobile installment sales finance Contracts, and does not anticipate
recommencing such purchasing. In connection with the termination of MFN
origination activities and the integration and consolidation of certain
activities, the Company has recognized certain liabilities related to the costs
to exit these activities and terminate the affected employees of MFN. These
activities include service departments such as accounting, finance, human
resources, information technology, administration, payroll and executive
management. These costs include the following:

F-19

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, DECEMBER 31, MARCH 8,
2004 (2) ACTIVITY 2003 ACTIVITY 2002
----------- ----------- ----------- ----------- -----------
(In thousands)

Severance payments and
consulting contracts ............ $ -- $ -- $ -- $ 3,215 $ 3,215
Facilities closures (1) ........... 1,184 705 1,889 263 2,152
Termination of contracts,
leases, services and
other obligations ............... -- -- -- 597 597
Acquisition expenses
accrued but unpaid .............. -- -- -- 250 250
----------- ----------- ----------- ----------- -----------

Total liabilities assumed ..... $ 1,184 $ 705 $ 1,889 $ 4,325 $ 6,214
=========== =========== =========== =========== ===========

- ---------------
(1) For the period from March 8, 2002 to December 31, 2003 the activity
resulting in a net charge of $263,000, includes charges against liability of
$1.5 million, and the reclassification of an existing accrual for offices closed
prior to the Merger Date of approximately $1.2 million.
(2) The Company believes that this amount provides adequately for anticipated
remaining costs related to exiting certain activities of MFN, and that amounts
indicated above are reasonably allocated.

The following table summarizes the estimated fair value of the assets acquired
and liabilities assumed at the date of acquisition.

MARCH 8, 2002
--------------
(In thousands)

Cash ......................................................... $ 93,782
Restricted cash .............................................. 25,499
Finance Contracts, net ....................................... 186,554
Residual interest in securitizations ......................... 32,485
Other assets ................................................. 12,006
--------------
Total assets acquired ..................................... 350,326
--------------
Securitization trust debt .................................... 156,923
Subordinated debt ............................................ 22,500
Accounts payable and other liabilities ....................... 30,242
--------------
Total liabilities assumed ................................. 209,665
--------------
Net assets acquired ....................................... 140,661
Less: purchase price ...................................... 123,249
--------------
Excess of net assets acquired over purchase price ......... $ 17,412
==============

ACQUISITION OF TFC ENTERPRISES, INC.

On May 20, 2003, CPS acquired TFC Enterprises, Inc., a Delaware corporation
(TFC) and its subsidiaries, by the merger (the TFC Merger) of a direct,
wholly-owned subsidiary of CPS, with and into TFC. In the TFC Merger, TFC became
a wholly-owned subsidiary of CPS. CPS thus acquired the assets of TFC and its
subsidiaries, which consisted principally of interests in motor vehicle
installment sales, finance Contracts, interests in securitized pools of such
Contracts, and the facilities for originating and servicing such Contracts. The
merger was accounted for as a purchase.

TFC, through its primary operating subsidiary, The Finance Company, purchases
motor vehicle installment sales finance Contracts from automobile Dealers, and
securitizes and services such Contracts. CPS intends to continue to use the
assets acquired in the TFC Merger in the automobile finance business.

F-20

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In connection with the integration and consolidation of certain activities
between CPS and TFC, the Company has recognized certain liabilities related to
the costs to integrate certain activities and terminate the affected employees
of TFC. These activities include service departments such as accounting,
finance, human resources, information technology, administration, payroll and
executive management. The total of these liabilities recognized by the Company
at the time of the merger were $4.5 million. These costs include the following:

DECEMBER 31, DECEMBER 31, MAY 20,
2004 (2) ACTIVITY 2003 ACTIVITY 2003
--------------- --------------- --------------- --------------- ---------------
(In thousands)

Severance Payments and
consulting contracts (1) .............. $ 418 $ 1,908 $ 2,326 $ 357 $ 2,683
Facilities closures ..................... 822 409 1,231 190 1,421
Other obligations ....................... -- 234 234 206 440
--------------- --------------- --------------- --------------- ---------------
Total liabilities assumed ........... $ 1,240 $ 2,551 $ 3,791 $ 753 $ 4,544
=============== =============== =============== =============== ===============

- ---------------
(1) For the period from December 31, 2003 to December 31, 2004 the activity
resulting in a change of $1.9 million, includes charges against the
liability of $621,000 and the reversal of $1.3 million of costs that the
Company no longer expects to incur. The $1.3 was recorded in the statement
of income as a reduction of current operating expenses.
(2) The Company believes that this amount provides adequately for anticipated
remaining costs related to exiting certain activities of TFC, and that
amounts indicated above are reasonably allocated.

At the closing of the TFC Merger, each outstanding share of common stock of TFC
became a right to receive $1.87 per share in cash. The total merger
consideration payable to stockholders of TFC was approximately $21.6 million.
The recipients of the total merger consideration had no material relationship
with CPS, its directors, its officers or any associates of such directors or
officers, to the best of CPSs knowledge. The merger consideration was paid with
existing cash of CPS. The aggregate purchase price, including expenses related
to the transaction, was approximately $23.7 million.

The Company's Consolidated Balance Sheet and Consolidated Statement of
Operations as of and for the year ended December 31, 2003, include the balance
sheet accounts of TFC Enterprises, Inc. as of December 31, 2003 and the results
of operations subsequent to May 20, 2003, the merger date. The Company has
recorded certain purchase accounting adjustments on its Consolidated Balance
Sheet, which are estimates based on available information.

The following table summarizes the recorded amounts of the assets acquired and
liabilities assumed at the date of acquisition.

MAY 20, 2003
------------
(In thousands)

Cash ....................................................... $ 13,545
Restricted cash ............................................ 17,723
Finance Contracts, net ..................................... 125,108
Other assets ............................................... 502
------------
Total assets acquired ................................ 156,878
------------
Securitization trust debt .................................. 115,597
Subordinated debt .......................................... 6,321
Capital lease obligations .................................. 17
Accounts payable and other liabilities ..................... 11,217
------------
Total liabilities assumed ............................ 133,152
------------
Purchase price ....................................... $ 23,726
============

F-21

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

PRO FORMA RESULTS OF OPERATIONS

Selected unaudited pro forma combined results of operations for the years ended
December, 2003 and 2002, assuming the MFN Merger and TFC Merger occurred on
January 1, 2003 and 2002, are as follows:

PRO FORMA PRESENTATION (UNAUDITED) YEAR ENDED DECEMBER 31,
-------------------------------------
2003 2002
---------------- ----------------
(In thousands)

Total revenue ............................................................... $ 107,598 $ 130,212
Net earnings before Merger-related expenses and extraordinary item .......... 824 (1,695)
Net earnings ................................................................ 824 (1,695)

Basic net earnings per share before Merger-related expenses and
extraordinary item ....................................................... 0.04 (0.09)
Extraordinary item .......................................................... -- --
---------------- ----------------
Basic net earnings per share ................................................ $ 0.04 $ (0.09)
================ ================

Diluted net earnings per share before Merger-related expenses and
extraordinary item ....................................................... $ 0.04 $ (0.08)
Extraordinary item .......................................................... -- --
---------------- ----------------
Diluted net earnings per share .............................................. $ 0.04 $ (0.08)
================ ================

(3) RESTRICTED CASH

Restricted cash comprised the following components:

DECEMBER 31,
-----------------------------
2004 2003
------------ ------------
(In thousands)
Securitization trust accounts ............... $ 118,944 $ 60,550
Litigation reserve .......................... 5,503 5,503
Note purchase facility reserve .............. 516 1,074
Other ....................................... 150 150
------------ ------------
Total restricted cash ....................... $ 125,113 $ 67,277
============ ============

Certain of the Company's operating agreements require that the Company establish
cash reserves for the benefit of the other parties to the agreements, in case
those parties are subject to any claims or exposure. In addition, certain of
these agreements require that the Company establish amounts in reserve related
to outstanding litigation.

F-22

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(4) FINANCE RECEIVABLES

The following table presents the components of Finance Receivables, net of
unearned interest:

DECEMBER 31,
---------------------------------
2004 2003
-------------- --------------
(In thousands)

Finance Receivables
Automobile
Simple Interest ....................................... $ 522,346 $ 178,679
Pre-compute, net of unearned interest ................. 86,932 133,339
-------------- --------------
Finance Receivables, net of unearned interest ......... 609,278 312,018
Less: Unearned acquisition fees and discounts ......... (16,472) (9,940)
-------------- --------------
Finance Receivables ................................... $ 592,806 $ 302,078
============== ==============

The following table presents a summary of the activity for the allowance for
credit losses, for the years ended December 31, 2004 and 2003:

DECEMBER 31,
-------------------------------
2004 2003
------------- -------------
(In thousands)

Balance at beginning of year ...................................... $ 35,889 $ 25,828
Addition to allowance for credit losses from acquisitions ......... -- 24,271
Provision for credit losses ....................................... 32,574 11,667
Charge-offs ....................................................... (34,636) (32,117)
Recoveries ........................................................ 8,788 6,240
------------- -------------
Balance at end of year ............................................ $ 42,615 $ 35,889
============= =============

(5) RESIDUAL INTEREST IN SECURITIZATIONS

The following table presents the components of the residual interest in
securitizations and shown at their discounted amounts:

DECEMBER 31,
----------------------------
2004 2003
------------ ------------
(In thousands)

Cash, commercial paper, United States government securities
and other qualifying investments (Spread Accounts) ............... $ 17,776 $ 27,210
Receivables from Trusts (NIRs) ...................................... 12,483 36,991
Overcollateralization ............................................... 16,644 32,195
Investment in subordinated certificates ............................. 3,527 15,306
------------ ------------

Residual interest in securitizations ................................ $ 50,430 $ 111,702
============ ============

The following table presents the estimated remaining undiscounted credit losses
included in the fair value estimate of the Residuals as a percentage of the
Company's managed portfolio held by non-consolidated subsidiaries subject to
recourse provisions:

F-23

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31,
----------------------------------------------
2004 2003 2002
------------ ------------ ------------
(Dollars in thousands)

Undiscounted estimated credit losses ........................... $ 23,588 $ 47,935 $ 54,363
Managed portfolio held by non-consolidated subsidiary .......... 233,621 425,534 478,136
Undiscounted estimated credit losses as a percentage of
managed portfolio held by non-consolidated subsidiary ........ 10.10% 11.30% 11.40%

The key economic assumptions used in measuring the residual interest in
securitizations at the date of securitization in 2003 are as follows: prepayment
speed of 21.7%, net credit losses of 12.5%, and a discount rate of 14%. There
were no securitizations accounted for as sales for financial accounting purposes
in 2004.

The key economic assumptions used in measuring all residual interest in
securitizations as of December 31, 2004 and 2003 are included in the table
below. The pre-tax discount rate remained constant at 14%, except for certain
cash flows from charged off receivables related to the Company's securitizations
from 2001 to 2003 where the Company has used a discount rate of 25%.

2004 2003
----------------- -----------------
Prepayment speed (Cumulative) .......... 20.0% - 30.5% 18.1% - 22.1%
Net credit losses (Cumulative) ......... 13.0% - 20.5% 11.8% - 18.0%

Static pool losses are calculated by summing the actual and projected future
credit losses and dividing them by the original balance of each pool of assets.

Key economic assumptions and the sensitivity of the current fair value of
residual cash flows to immediate 10% and 20% adverse changes in those
assumptions are as follows:

DECEMBER 31,
----------------------
2004
----------------------
(Dollars in thousands)

Carrying amount/fair value of residual interest in securitizations ......... $ 50,430
Weighted average life in years ............................................. 2.95

Prepayment Speed Assumption (Cumulative) ................................... 20.0% - 30.5%
Estimated fair value assuming 10% adverse change ........................... $ 50,199
Estimated fair value assuming 20% adverse change ........................... 49,951

Expected Net Credit Losses (Cumulative) .................................... 13.0% - 20.5%
Estimated fair value assuming 10% adverse change ........................... $ 48,764
Estimated fair value assuming 20% adverse change ........................... 47,268

Residual Cash Flows Discount Rate (Annual) ................................. 14.0% - 25.0%
Estimated fair value assuming 10% adverse change ........................... $ 49,320
Estimated fair value assuming 20% adverse change ........................... 48,320

F-24

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the cash flows received from (paid to) the
Company's unconsolidated securitization Trusts:

FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------
(In thousands)

Releases of cash from Spread Accounts ............... $ 17,175 $ 25,934 $ 60,393
Servicing Fees received ............................. 13,631 17,039 13,761
Net deposits to increase Credit Enhancement ......... (2,106) (20,867) (24,236)
Initial funding of Credit Enhancement ............... -- (18,736) (16,749)
Purchase of delinquent or foreclosed assets ......... (44,473) (45,747) (34,365)
Repurchase of trust assets .......................... -- -- (97,946)

The following table presents the historical loss and delinquency amounts for the
serviced portfolio:

Principal Amount of
Total Principal Contracts 60 Days Net Credit Losses
Amount of Contracts or More Past Due for the Year Ended
--------------------------- --------------------------- ---------------------------
At December 31, At December 31, December 31,
--------------------------- --------------------------- ---------------------------
2004 2003 2004 2003 2004 2003
------------ ------------ ------------ ------------ ------------ ------------
(In thousands)

Contracts held by
consolidated subsidiaries ............ $ 619,794 $ 315,598 $ 17,379 $ 16,176 $ 26,418 $ 4,210
Contracts held by
non-consolidated subsidiaries ......... 233,621 425,534 10,037 13,969 36,042 40,096
SeaWest Third Party Portfolio .......... 53,463 -- 5,065 -- 18,018 --
------------ ------------ ------------ ------------ ------------ ------------
Total managed portfolio ................ $ 906,878 $ 741,132 $ 32,481 $ 30,145 $ 80,478 $ 44,306
============ ============ ============ ============ ============ ============

(6) FURNITURE AND EQUIPMENT

The following table presents the components of furniture and equipment:

DECEMBER 31,
-----------------------------
2004 2003
------------ ------------
(In thousands)

Furniture and fixtures ............................. $ 3,744 $ 2,994
Computer equipment ................................. 4,699 4,034
Leasing assets ..................................... 673 673
Leasehold improvements ............................. 651 637
Other fixed assets ................................. 17 50
------------ ------------
9,784 8,388
Less: accumulated depreciation and amortization .... (8,218) (7,562)
------------ ------------
$ 1,566 $ 826
============ ============

Depreciation expense totaled $660,000, $878,000 and $1.0 million for the years
ended December 31, 2004, 2003 and 2002, respectively.

F-25

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(7) SECURITIZATION TRUST DEBT

The Company has completed a number of securitization transactions that are
structured as secured borrowings for financial accounting purposes. The debt
issued in these transactions is shown on the Company's consolidated balance
sheets as Securitization Trust Debt, and the components of such debt are
summarized in the following table:

Weighted
Final Outstanding Outstanding Average
Scheduled Principal at Principal at Interest Rate at
Payment Initial December 31, December 31, December 31,
Series Issue Date Date (1) Principal 2004 2003 2004
- ----------- -------------------- ------------------ ------------- -------------- -------------- ----------------

MFN 2001-A June 28, 2001 June 15, 2007 $ 301,000 $ 3,382 $ 20,987 5.07%
TFC 2002-1 March 19, 2002 August 15, 2007 64,552 2,574 12,403 4.23%
TFC 2002-2 October 9, 2002 March 15, 2008 62,589 9,152 25,436 2.95%
TFC 2003-1 May 20, 2003 January 15, 2009 52,365 17,703 37,114 2.69%
CPS 2003-C September 30, 2003 March 15, 2010 87,500 53,456 77,928 2.92%
CPS 2003-D December 16, 2003 October 15, 2010 75,000 50,722 71,250 2.97%
CPS 2004-A May 5, 2004 October 15, 2010 82,094 66,737 N/A 3.22%
PCR 2004-1 June 24, 2004 March 15, 2010 76,257 52,633 N/A 3.14%
CPS 2004-B August 2, 2004 February 15, 2011 96,369 84,185 N/A 4.10%
CPS 2004-C September 30, 2004 April 15, 2011 100,000 93,071 N/A 3.70%
CPS 2004-D December 21, 2004 December 15, 2011 109,200 109,200 N/A 3.67%
------------- -------------- --------------
$ 1,106,926 $ 542,815 $ 245,118
============= ============== ==============

- ---------------
(1) The Final Scheduled Payment Date represents final legal maturity of the
securitization trust debt. Securitization trust debt is expected to become due
and to be paid prior to those dates, based on amortization of the finance
receivables pledged to the Trusts. Expected payments, which will depend on the
performance of such receivables, as to which there can be no assurance, are
$202.7 million in 2005, $150.8 million in 2006, $94.9 million in 2007, $56.3
million in 2008, $31.2 million in 2009, and $6.9 million in 2010.

All of the securitization trust debt was sold in private placement transactions
to qualified institutional buyers. The debt was issued through wholly-owned,
bankruptcy remote subsidiaries of CPS, TFC or MFN, and is secured by the assets
of such subsidiaries, but not by other assets of the Company. Principal and
interest payments are guaranteed by financial guaranty insurance policies.

The terms of the various Securitization Agreements related to the issuance of
the securitization trust debt require that certain delinquency and credit loss
criteria be met with respect to the collateral pool, and require that the
Company maintain minimum levels of liquidity and net worth and not exceed
maximum leverage levels and maximum financial losses. As a result of waivers and
amendments to these covenants throughout 2004 and during the first quarter of
2005, the Company was in compliance with all such covenants as of December 31,
2004. Without the waivers and amendments obtained in the first quarter of 2005,
the Company would have been in breach of covenants related to maintaining a
minimum level of net worth and incurring a maximum financial loss as of December
31, 2004.

The Company is responsible for the administration and collection of the
Contracts. The Securitization Agreements also require certain funds be held in
restricted cash accounts to provide additional collateral for the borrowings or
to be applied to make payments on the securitization trust debt. As of December
31, 2004, restricted cash under the various agreements totaled approximately
$118.9 million. Interest expense on the securitization trust debt is composed of
the stated rate of interest plus amortization of additional costs of borrowing.
Additional costs of borrowing include facility fees, insurance and amortization
of deferred financing costs. Deferred financing costs related to the
securitization trust debt are amortized in proportion to the principal
distributed to the noteholders. Accordingly, the effective cost of borrowing of
the securitization trust debt is greater than the stated rate of interest.

F-26

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The wholly-owned, bankruptcy remote subsidiaries of CPS, MFN and TFC were formed
to facilitate the above asset-backed financing transactions. Similar bankruptcy
remote subsidiaries issue the debt outstanding under the Company's warehouse
lines of credit. Bankruptcy remote refers to a legal structure in which it is
expected that the applicable entity would not be included in any bankruptcy
filing by its parent or affiliates. All of the assets of these subsidiaries have
been pledged as collateral for the related debt. All such transactions, treated
as secured financings for accounting and tax purposes, are treated as sales for
all other purposes, including legal and bankruptcy purposes. None of the assets
of these subsidiaries are available to pay other creditors of the Company or its
affiliates.

(8) DEBT

On December 20, 1995, the Company issued $20.0 million in rising interest
subordinated redeemable securities due January 1, 2006 (the Notes). The Notes
are unsecured general obligations of the Company. Interest on the Notes is
payable on the first day of each month, commencing February 1, 1996, at an
interest rate of 10.0% per annum. The interest rate increases 0.25% on each
January 1 for the first nine years and 0.50% in the last year. In connection
with the issuance of the Notes, the Company incurred and capitalized issuance
costs of $1.1 million. The Notes are subordinated to certain existing and future
indebtedness of the Company as defined in the indenture agreement. The Company
is required to redeem on an annual basis, subject to certain adjustments, $1.0
million of the aggregate principal amount of the Notes through the operation of
a sinking fund on or before of January 1, 2000, 2001, 2002, 2003, 2004 and 2005.
The Company may at its option elect to redeem the Notes from the registered
holders of the Notes, in whole or in part at 100% of their principal amount,
plus accrued interest to and including the date of redemption. During each of
the years 1999 through 2003, the Company redeemed $1.0 million of principal
amount of the notes in conjunction with the requirements of the related sinking
fund agreement. The balance outstanding of the Notes at December 31, 2004 and
2003, was $15.0 million, with an interest rate of 12% and 11.75% respectively.

On April 15, 1997, the Company issued $20.0 million in subordinated
participating equity notes (PENs) due April 15, 2004. The PENs were unsecured
general obligations of the Company. Interest on the PENs was payable on the
fifteenth of each month, commencing May 15, 1997, at an interest rate of 10.5%
per annum. In connection with the issuance of the PENs, the Company incurred and
capitalized issuance costs of $1.2 million. The Company recognized interest and
amortization expense related to the PENs using the effective interest method
over the expected redemption period. The PENs were subordinated to certain
existing and future indebtedness of the Company as defined in the indenture
agreement. The Company had the option to redeem the PENs from the registered
holders, in whole but not in part, at any time on or after April 15, 2000, at
100% of their principal amount, subject to limited conversion rights, plus
accrued interest to and including the date of redemption. At maturity, upon the
exercise by the Company of an optional redemption, or upon the occurrence of a
Special Redemption Event, each holder had the right to convert into common stock
of the Company (Common Stock), 25% of the aggregate principal amount of the PENs
held by such holder at the conversion price of $10.15 per share of Common Stock.
Special Redemption Events are certain events related to a change in control of
the Company. The Company fully repaid the PENs in April 2004.

In November 1998, the Company issued $25.0 million of subordinated promissory
notes due November 30, 2003, to an affiliate of Levine Leichtman Capital
Partners, Inc., Levine Leichtman Capital Partners II, L.P. (LLCP), and received
the proceeds (net of $1.3 million of capitalized issuance costs), of
approximately $23.7 million. The Company also issued warrants to purchase up to
3,450,000 shares of common stock at $3.00 per share, exercisable through
November 30, 2005 (see Note 13). The debt bore interest at 13.5% per annum.
Simultaneously with the consummation of that transaction, certain affiliates of
the Company, who had lent the Company an aggregate of $5.0 million on a
short-term basis in August and September 1998, agreed to subordinate their
indebtedness to the indebtedness in favor of LLCP, to extend the maturity of
their debt until June 2004, and to reduce their interest rate from 15% to 12.5%.
Such affiliates received in return the option to convert such debt into an
aggregate of 1,666,667 shares of common stock at the rate of $3.00 per share
through maturity at June 30, 2004. Additionally, SFSC also agreed to subordinate
$6.0 million, or 40%, of its related party loan in favor of LLCP (see Note 13).

F-27

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In April 1999, the Company issued an additional $5.0 million of subordinated
promissory notes due April 30, 2004, to the same affiliate of LLCP as noted
above, and received proceeds (net of $312,000 of capitalized issuance costs) of
$4.7 million. The Company also issued warrants to purchase 1,335,000 shares of
the Company's common stock at $0.01 per share to LLCP, exercisable through April
2009. The debt bears interest at 14.5% per annum, and may be prepaid without
penalty at anytime. As part of the purchase agreement, the interest rate on the
previously issued LLCP notes was increased to 14.5% per annum, and the warrant
to purchase 3,450,000 shares of the Company's common stock at $3.00 per share
was exchanged for a warrant to purchase 3,115,000 shares at a price of $0.01 per
share. Remaining outstanding as of December 31, 2004 was a warrant to purchase
1,000 shares.

In March 2000, the Company issued $16.0 million of senior secured debt to LLCP
(the Term B Note). The proceeds from the issuance were used to repay in full all
amounts owed under the Senior Secured Line. As part of the agreement, all of
LLCPs existing debt of $30.0 million was restructured as senior secured debt,
making the Company's aggregate principal indebtedness to LLCP equal to $46.0
million. The $16.0 million bears interest at 12.5% per annum and the interest
rate on the $30.0 million is unchanged at 14.5% per annum. As part of the
agreement, all prior defaults were either waived or cured. As of December 31,
2000, the amount outstanding of the $16.0 million portion of senior secured debt
was $8.0 million. The outstanding balance on the $16.0 million LLCP debt was
repaid during the first quarter of 2001. In addition, during the first quarter
of 2001, the Company made a $4.0 million principal prepayment on the remaining
outstanding LLCP debt, incurring $200,000 in prepayment penalties and waiver
fees. The outstanding balance of Term B Note at December 31, 2004 was $19.8
million. The interest rate on this note has been adjusted as discussed below.

In March 2002, the Company and LLCP entered into an additional series of
agreements under which LLCP provided additional funding to enable the Company to
acquire MFN Financial Corporation. Under the March 2002 agreements, the Company
borrowed $35 million from LLCP as a bridge note (the Bridge Note) and
approximately $8.5 million (the Term C Note) on a deemed principal amount of
approximately $11.2 million. The Bridge Note requires principal payments of $2.0
million a month, which began in June 2002, with a final balloon payment in the
amount of $17.0 million, which was made pursuant to the terms of the Bridge Note
in February 2003. The Term C Note repayment schedule is based on the performance
of a certain securitized pool. As the subordinated Note of the pool is repaid
from the Trust, principal payments are due on the Term C Note. The maturity date
of the Term C Note was March 2008. Interest was due monthly on the Bridge Note
at a rate of 13.5% per annum and on the Term C Note at a rate of 12.0% per
annum. In connection with the March 2002 agreements and the acquisition of MFN,
the Company paid LLCP a structuring fee of $1.75 million and an investment
banking fee of $1.0 million, and paid LLCP's out-of-pocket expenses of
approximately $315,000. In addition, the Company paid LLCP certain other fees
and interest amounting to $426,181. Approximately $1.4 million of the fees and
other amounts paid to LLCP were deferred as financing costs and are being
amortized over the life of the related debt. The remaining fees and other costs
were included in the purchase price of MFN.

On February 3, 2003, the Company borrowed $25.0 million from LLCP, net of fees
and expenses of $1.05 million. The indebtedness, represented by the Term D Note,
was originally due in April 2003, with Company options to extend the maturity to
May 2003 and January 2004, upon payment of successive extension fees of
$125,000. The Company has paid the fees to extend the maturity to January 2004.
Interest on the Term D Note is payable monthly at rates that averaged 4.79% per
annum through June 30, 2003, and 12.0% per annum thereafter. In a separate
transaction, the Bridge Note issued to LLCP in connection with the acquisition
of MFN, in an original principal amount of $35.0 million, was due on February
28, 2003. The outstanding principal balance of $17.0 million was paid in
February 2003. In addition, the maturity of the Term B Note was extended in
October 2003 from November 2003 to January 2004. The Company repaid in full the
Term C Note on January 29, 2004 and repaid $10.0 million of the Term D Note on
January 15, 2004. In addition, on January 29, 2004 the maturities of the Term B
Note and the Term D Note were extended to December 15, 2005 and the coupons on
both notes were decreased to 11.75% per annum from 14.50% and 12.00%,
respectively. The Company paid LLCP fees equal to $921,000 for these amendments,
which will be amortized over the remaining life of the notes. As of December 31,
2004, the outstanding principal balances of the Term B Note and the Term D Note
were $19.8 million and $15.0 million, respectively.

F-28

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 28, 2004 and June 25, 2004, the Company borrowed $15 million and $10
million, respectively, from LLCP. The indebtedness, represented by the Term E
Note, and the Term F Note, respectively, bears interest at 11.75% per annum.
Both the Term E Note and the Term F Note mature two years from their respective
funding dates. As of December 31, 2004, the outstanding principal balances of
the Term E Note and the Term F Note were $15.0 million and $10.0 million,
respectively.

On March 16, 2004, a special-purpose subsidiary of CPS issued $44 million of
asset-backed 10% notes. The notes, issued by CPS Auto Receivables Trust 2004-R,
are rated BBB by Standard & Poors and have a final maturity date of October 16,
2009. The notes are secured by the Company's residual interest in four
securitizations sponsored by CPS, two securitizations sponsored by MFN, and two
securitization transactions sponsored by TFC. The notes are non-recourse
obligations of the Company and will be repaid solely from the cash distributions
on the retained interests securing the notes. As of December 31, 2004, $22.2
million of the notes remain outstanding.

At the time of the MFN Merger, MFN had outstanding $22.5 million in principal
amount of senior subordinated debt, which was due and repaid in full on March
23, 2002. Such debt bore interest at the rate of 11.00% per annum, payable
quarterly in arrears. At the time of the TFC Merger, TFC had outstanding $6.3
million in principal amount of subordinated debt, which the Company assumed as
part of the TFC Merger. Such debt bears interest at the rate of 13.25% per annum
payable monthly in arrears, requires monthly amortization, is due in June 2005
and has $1.0 million outstanding at December 31, 2004.

The following table summarizes the contractual maturity amounts of notes
payable, senior secured and subordinated debt as of December 31, 2004:

PRINCIPAL
AMOUNT
-------------
(In thousands)

2005 .................................................... $ 37,039
2006 .................................................... 39,166
2007 .................................................... 45
------------
Total .............................................. $ 76,250
============

(9) SHAREHOLDERS EQUITY

COMMON STOCK

Holders of common stock are entitled to such dividends as the Company's Board of
Directors, in its discretion, may declare out of funds available, subject to the
terms of any outstanding shares of preferred stock and other restrictions. In
the event of liquidation of the Company, holders of common stock are entitled to
receive, pro rata, all of the assets of the Company available for distribution,
after payment of any liquidation preference to the holders of outstanding shares
of preferred stock. Holders of the shares of common stock have no conversion or
preemptive or other subscription rights and there are no redemption or sinking
fund provisions applicable to the common stock.

F-29

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company is required to comply with various operating and financial covenants
defined in the agreements governing the warehouse lines, senior debt,
subordinated debt, and related party debt. The covenants restrict the payment of
certain distributions, including dividends (See Note 8.).

Included in common stock at December 31, 2003, is additional paid in capital of
$1.6 million related to the valuation of certain stock options as required by
Financial Interpretation No. 44 (FIN 44) or the valuation of conditionally
granted options as required under Accounting Principals Board Opinion No. 25
(APB 25). Included in compensation expense for December 31, 2004 and 2003, is
$271,000 and $1.1 million related to the amortization of deferred compensation
expense and valuation of stock options.

STOCK PURCHASES

During 2000, the Company's Board of Directors authorized the Company to purchase
up to $5 million of Company securities. In October 2002, the Board of Directors
authorized the purchase of an additional $5 million of outstanding debt or
equity securities. In October 2004, the Board of Directors authorized the
purchase of an additional $5,000,000 of outstanding debt or equity securities.
As of December 31, 2004, the Company had purchased $4.0 million in principal
amount of the debt securities, and $4.0 million of its common stock,
representing 2,167,036 shares.

OPTIONS AND WARRANTS

In 1991, the Company adopted and its sole shareholder approved the 1991 Stock
Option Plan (the 1991 Plan) pursuant to which the Company's Board of Directors
may grant stock options to officers and key employees. The Plan, as amended,
authorizes grants of options to purchase up to 2,700,000 shares of authorized
but unissued common stock. Stock options are granted with an exercise price
equal to the stocks fair market value at the date of grant. Stock options have
terms that range from 7 to 10 years and vest over a range of 0 to 7 years. In
addition to the 1991 Plan, in fiscal 1995, the Company granted 60,000 options to
certain directors of the Company that vest over three years and expire nine
years from the grant date. The Plan terminated in December 2001, without
affecting the validity of the outstanding options.

In July 1997, the Company adopted and its shareholders approved the 1997
Long-Term Incentive Plan (the 1997 Plan) pursuant to which the Company's Board
of Directors may grant stock options, restricted stock and stock appreciation
rights to employees, directors or employees of entities in which the Company has
a controlling or significant equity interest. Options that have been granted
under the 1997 Plan have in all cases been granted at an exercise price equal to
the stocks fair market value at the date of the grant, with terms of 10 years
and vesting over 5 years. In 2001, the shareholders of the Company approved an
amendment to the 1997 Plan providing that an aggregate maximum of 3,400,000
shares of the Company's common shares may be subject to awards under the 1997
Plan. In 2003, the shareholders of the Company approved an amendment to the 1997
Plan to further increase the aggregate maximum number of shares that may be
granted within the Plan to 4,900,000 shares. A further increase to 6,900,000
shares in the aggregate maximum number of shares that may be granted was
approved by the shareholders in 2004.

In October 1998, the Company's Board of Directors approved a plan to cancel and
reissue certain stock options previously granted to key employees of the
Company. All options granted prior to October 22, 1998, with an option price
greater than $3.25 per share, were repriced to $3.25 per share. In conjunction
with the repricing, a one-year period of non-exercisability was placed on all
repriced options, which period ended on October 21, 1999.

F-30

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In October 1999, the Company's Board of Directors approved a plan to cancel and
reissue certain stock options previously granted to key employees of the
Company. All options granted prior to October 29, 1999, with an option price
greater than $0.625 per share, were repriced to $0.625 per share. In conjunction
with the repricing, a six-month period of non-exercisability was placed on all
repriced options, which period ended on April 29, 2000.

At December 31, 2004, there were a total of 1,391,631 additional shares
available for grant under the 1997 Plan and the 1991 Plan. Of the options
outstanding at December 31, 2004, 2003 and 2002, 1,611,182, 1,168,042, and
920,101, respectively, were then exercisable, with weighted-average exercise
prices of $2.25, $1.71, and $1.30, respectively.

Stock option activity during the periods indicated is as follows:

WEIGHTED
NUMBER OF AVERAGE
SHARES EXERCISE PRICE
-------------- --------------
(In thousands, except per share data)

Balance at December 31, 2001 ................... 3,822 $ 1.35
Granted ..................................... 1,804 1.55
Exercised ................................... 1,254 0.64
Canceled .................................... 340 1.63
-------------- --------------
Balance at December 31, 2002 ................... 4,032 1.64
Granted ..................................... 1,013 2.46
Exercised ................................... 609 0.93
Canceled .................................... 564 1.69
-------------- --------------
Balance at December 31, 2003 ................... 3,872 1.96
Granted ..................................... 938 3.96
Exercised ................................... 575 1.23
Canceled .................................... 183 2.39
-------------- --------------
Balance at December 31, 2004 ................... 4,052 $ 2.51
============== ==============

The per share weighted average fair value of stock options granted whose
exercise price was equal to the market price of the stock on the grant date
during the years ended December 31, 2004, 2003 and 2002, was $2.30, $2.09, and
$1.39, respectively. The Company did not issue any stock options above or below
the market price of the stock on the grant date.

During 2002, the Company's Board of Directors approved a program whereby
officers of the Company would be loaned amounts sufficient to enable them to
exercise certain of their outstanding options. See Note 13.

At December 31, 2004, the range of exercise prices, the number, weighted-average
exercise price and weighted-average remaining term of options outstanding and
the number and weighted-average price of options currently exercisable are as
follows:

F-31

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ------------------------------------------------------------------------------- -------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE PRICES NUMBER REMAINING EXERCISE PRICE NUMBER EXERCISE PRICE
(PER SHARE) OUTSTANDING TERM (YEARS) PER SHARE EXERCISABLE PER SHARE
- ---------------------------- ---------------- ---------------- ---------------- ---------------- --------------
(In thousands, except per share data)

$0.63 - $1.50 .............. 1,047 7.37 $ 1.46 380 $ 1.47
$1.54 - $1.88 .............. 758 6.38 $ 1.74 588 $ 1.74
$1.99 - $2.50 .............. 509 7.05 $ 2.20 219 $ 2.27
$2.64 - $3.64 .............. 748 8.65 $ 2.87 141 $ 2.74
$4.00 - $4.49 .............. 990 8.69 $ 4.08 283 $ 4.07

On November 17, 1998, in conjunction with the issuance of a $25.0 million
subordinated promissory note to an affiliate of LLCP, the Company issued
warrants to purchase up to 3,450,000 shares of common stock at $3.00 per share,
exercisable through November 30, 2005. In April 1999, in conjunction with the
issuance of $5.0 million of an additional subordinated promissory note to an
affiliate of LLCP, the Company issued additional warrants to purchase 1,335,000
shares of the Company's common stock at $0.01 per share to LLCP. As part of the
purchase agreement, the existing warrants to purchase 3,450,000 shares at $3.00
per share were exchanged for warrants to purchase 3,115,000 shares at a price of
$0.01 per share. The aggregate value of the warrants, $12.9 million, which is
comprised of $3.0 million from the original warrants issued in November 1998 and
$9.9 million from the repricing and additional warrants issued in April 1999, is
reported as deferred interest expense to be amortized over the expected life of
the related debt, five years. As of December 31, 2004, 1,000 warrants remained
unexercised. Such warrants, and the 4,449,000 shares of common stock have, upon
the exercise of such warrants, not been registered for public sale. However, the
holder has the right to require the Company register the warrants and common
stock for public sale in the future.

Also in November 1998, the Company entered into an agreement with the Note
Insurer of its asset-backed securities. The agreement committed the Note Insurer
to provide insurance for the securitization of $560.0 million in asset-backed
securities, of which $250.0 million remained at December 31, 1998. The agreement
provides for a 3% initial Spread Account deposit. As consideration for the
agreement, the Company issued warrants to purchase up to 2,525,114 shares of
common stock at $3.00 per share, subject to anti-dilution adjustments. The
warrants were fully exercisable on the date of grant and expired in December
2003. In November 2003, the Company purchased the warrants from the Note Insurer
for $896,415.

(10) NET GAIN ON SALE OF CONTRACTS

The following table presents the components of the net gain on sale of
Contracts:

YEAR ENDED DECEMBER 31,
-----------------------------
2003 2002
------------- -------------
(In thousands)

Gain recognized on sale of Contracts ........... $ 8,433 $ 22,554
Deferred acquisition fees and discounts ........ 4,590 5,285
Expenses related to sales ...................... (2,076) (3,682)
Provision for credit losses .................... (526) (2,639)
------------- -------------
Net gain on sale of Contracts .................. $ 10,421 $ 21,518
============= =============

No gain on sale was recorded in the year ended December 31, 2004 due to the July
2003 decision to structure future securitizations as secured financings, rather
than as sales.

F-32

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(11) INTEREST INCOME

The following table presents the components of interest income:

YEAR ENDED DECEMBER 31,
--------------------------------------------
2004 2003 2002
------------ ------------ ------------
(In thousands)

Interest on Finance Receivables ......... $ 99,701 $ 40,380 $ 32,851
Residual interest income ................ 4,634 16,178 15,392
Other interest income ................... 1,483 1,606 401
------------ ------------ ------------

Net interest income ..................... $ 105,818 $ 58,164 $ 48,644
=========== =========== ===========

(12) INCOME TAXES

Income taxes consist of the following:

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------
(In thousands)

Current:
Federal ................................................. $ 712 $ 2,781 $ (11,295)
State ................................................... 862 356 (715)
------------- ------------- -------------
1,574 3,137 (12,010)

Deferred:
Federal ................................................. (5,859) (25,345) 10,867
State ................................................... (2,282) (4,141) 1,428
Change in valuation allowance ........................... 6,567 22,915 (3,219)
------------- ------------- -------------
(1,574) (6,571) 9,076
------------- ------------- -------------
Income tax benefit ............................... $ -- $ (3,434) $ (2,934)
============= ============= =============

The Company's effective tax expense benefit for the years ended December 31,
2004, 2003 and 2002, differs from the amount determined by applying the
statutory federal rate of 35% to income (loss) before income taxes as follows:

YEAR ENDED DECEMBER 31,
-------------------------------------------------
2004 2003 2002
------------- ------------- -------------
(In thousands)

Expense (benefit) at federal tax rate ...................... $ (5,561) $ (1,064) $ 6,116
California franchise tax, net of federal income
tax benefit ............................................. (1,015) (2,460) 459
Other ...................................................... 9 92 (196)
Negative Goodwill .......................................... -- -- (6,094)
Debt Forgiveness ........................................... -- (22,917) --
Valuation allowance ........................................ 6,567 22,915 (3,219)
------------- ------------- -------------
$ -- $ (3,434) $ (2,934)
============= ============= =============

F-33

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The tax effected cumulative temporary differences that give rise to deferred tax
assets and liabilities as of December 31, 2004 and 2003, are as follows:

DECEMBER 31,
----------------------------
2004 2003
------------- -------------
(In thousands)

DEFERRED TAX ASSETS:
Accrued liabilities ........................... $ 23,841 $ 11,185
Furniture and equipment ....................... 1,016 1,465
Equity investment ............................. 82 82
NOL carryforwards and BILs .................... 27,702 31,397
Minimum tax credit ............................ 697 481
Pension Accrual ............................... 801 1,617
Other ......................................... (339) 461
------------- -------------
Total deferred tax assets .................. 53,800 46,688
Valuation allowance ........................... (43,930) (37,363)
------------- -------------
9,870 9,325
------------- -------------

DEFERRED TAX LIABILITIES:
NIRs .......................................... (1,407) (6,789)
Provision for loan loss ....................... (8,463) (2,125)
------------- -------------
Total deferred tax liabilities ............. (9,870) (8,914)
------------- -------------

Net deferred tax asset (liability) ......... $ -- $ 411
============= =============

As part of the MFN Merger, CPS acquired certain net operating losses, debt
forgiveness, as discussed below, and built in loss assets. Moreover, MFN has
undergone an ownership change for purposes of Internal Revenue Code (IRC)
section 382. In general, IRC section 382 imposes an annual limitation on the
ability of a loss corporation (i.e., a corporation with a net operating loss
(NOL) carryforward, credit carryforward, or certain built-in losses (BILs)) to
utilize its pre-change NOL carryforwards or BILs to offset taxable income
arising after an ownership change. During 1999, MFN recorded an extraordinary
gain from the discharge of indebtedness related to the emergence from
Bankruptcy. This gain was not taxable under IRC section 108. In accordance with
the rules under IRC section 108, MFN has reduced certain tax attributes
including unused net operating losses and tax basis in certain MFN assets.
Deferred taxes have been provided for the estimated tax effect of the future
reversing timing differences related to the discharge of indebtedness gain as
reduced by the tax attributes. Additionally, the Company has established a
valuation allowance of $31.0 million against MFNs deferred tax assets, as it is
not more than likely that these amounts will be realized in the future. In
determining the possible future realization of deferred tax assets, future
taxable income from the following sources are taken into account: (a) reversal
of taxable temporary differences, (b) future operations exclusive of reversing
temporary differences, and (c) tax planning strategies that, if necessary, would
be implemented to accelerate taxable income into years in which net operating
losses might otherwise expire.

As part of the TFC Merger, CPS acquired certain built in loss assets. Moreover,
TFC has undergone an ownership change for purposes of Internal Revenue Code
(IRC) section 382. In general, IRC section 382 imposes an annual limitation on
the ability of a loss corporation (i.e., a corporation with a net operating loss
(NOL) carryforward, credit carryforward, or certain built-in losses (BILs)) to
utilize its pre-change NOL carryforwards or BILs to offset taxable income
arising after an ownership change. Additionally, the Company has established a
valuation allowance of $10.0 million against TFCs deferred tax assets, as it is
not more than likely that these amounts will be realized in the future. In
determining the possible future realization of deferred tax assets, future
taxable income from the following sources are taken into account: (a) reversal
of taxable temporary differences, (b) future operations exclusive of reversing
temporary differences, and (c) tax planning strategies that, if necessary, would
be implemented to accelerate taxable income into years in which net operating
losses might otherwise expire.

F-34

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2004, the Company has net operating loss carryforwards for
federal and state income tax purposes of $18.5 million ($17.4 million subject to
IRC 382) and $3.1 million, respectively, which are available to offset future
taxable income, if any, subject to IRC section 382 limitations, through 2021 and
2013, respectively. In addition, the Company has an alternative minimum tax
credit carry forward of approximately $697,000, which is available to reduce
future federal regular income taxes, if any, over an indefinite period.

The Company's tax returns are open for audits by various tax authorities.
Therefore, from time-to-time there may be differences in opinions with respect
to the tax treatment accorded to certain transactions. When, and if, such
differences occur and become probable and estimatable, such amounts will be
recognized. The Company filed its tax returns on a fiscal year ending March 31
through March 31, 2002. It changed its tax fiscal year to a calendar year
effective December 31, 2002.

(13) RELATED PARTY TRANSACTIONS

RELATED PARTY RECEIVABLES

As of December 31, 2001, the Company had receivables of $669,000 from CARSUSA,
Inc. (CARSUSA), which owned and operated a Mitsubishi automobile dealership in
Southern California, and is owned by Charles E. Bradley, Sr. and Charles E.
Bradley, Jr. During 2002, CARSUSA became insolvent, sold its assets to an
unaffiliated party, partially paid its secured creditors, and wound up its
business. The Company determined that the receivable was uncollectible, and
wrote down its value to zero. The writedown-related expense of $669,000 is
reflected in the Company's Consolidated Statement of Operations for the year
ended December 31, 2002 in general and administrative expenses. The Company
purchased seven and 16 Contracts from CARSUSA, with an aggregate principal
balance of approximately $99,996 and $233,431, respectively, in 2002 and 2001.
The Company did not purchase any contracts from CARSUSA in 2003 and 2004.

CPS LEASING, INC. RELATED PARTY DIRECT LEASE RECEIVABLES

Included in other assets recorded in the Company's Consolidated Balance Sheet
are direct lease receivables due to CPS Leasing, Inc. from related parties,
primarily companies affiliated with the Company's former Chairman of the Board
of Directors. Such related party direct lease receivables net of a valuation
allowance totaled approximately $1.8 million and $1.9 million at December 31,
2004 and 2003, respectively.

RELATED PARTY DEBT

In June 1997 the Company borrowed $15.0 million on an unsecured and subordinated
basis from Stanwich Financial Services Corp. (SFSC), an affiliate of Charles E.
Bradley, Sr., the former Chairman of the Company's Board of Directors. This loan
(RPL) was due 2004, and had a fixed rate of interest of 9% per annum, payable
monthly beginning July 1997. The Company had the right to pre-pay the RPL
without penalty at any time after three years. At maturity or repayment of the
RPL, the holder thereof had an option to convert 20% of the principal amount
into common stock of the Company, at a conversion rate of $11.86 per share. The
Company fully repaid the RPL in June 2004.

During 1998, the Company borrowed $1.0 million on an unsecured basis from John
G. Poole, a director of the Company. This note (RPL3) had a fixed rate of
interest of 12.5% per annum payable monthly beginning December 1998. The Company
had the right to pre-pay the RPL3, without penalty, at any time after June 12,
2000. At maturity or repayment of the RPL3, the holder thereof would have the
option to convert the entire principal balance of the note, or a portion
thereof, into common stock of the Company, at a conversion rate of $3 per
share.. The entire balance of the RPL3 was converted to common stock of the
Company in June 2004.

F-35

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

During 1999, the Company borrowed $1.5 million on an unsecured basis from SFSC.
This loan (RPL4) was due 2004, had a fixed rate of interest of 14.5% per annum
payable monthly beginning October 1999. In conjunction with the issuance of the
RPL4, the Company issued warrants to purchase 103,500 shares of the Company's
common stock at a price of $0.01 per share. The Company fully repaid the RPL4 in
June 2004.

LOANS TO OFFICERS TO EXERCISE CERTAIN STOCK OPTIONS

During 2002, the Company's Board of Directors approved a program under which
officers of the Company would be advanced amounts sufficient to enable them to
exercise certain of their outstanding options. Such loans were available for a
limited period of time, and available only to exercise previously repriced
options. The loans bear interest at a rate of 5.50% per annum, and are due in
2007. At December 31, 2004, there was $454,000 outstanding related to these
loans. Such amounts have been recorded as contra-equity within common stock in
the Shareholders Equity section of the Company's Consolidated Balance Sheet.

(14) COMMITMENTS AND CONTINGENCIES

LEASES

The Company leases its facilities and certain computer equipment under
non-cancelable operating leases, which expire through 2008. Future minimum lease
payments at December 31, 2004, under these leases are due during the years ended
December 31 as follows:

AMOUNT
--------------
(In thousands)

2005 ..................................................... $ 4,370
2006 ..................................................... 3,524
2007 ..................................................... 2,795
2008 ..................................................... 1,748
------------
Total minimum lease payments ............................. $ 12,437
============

Rent expense for the years ended December 31, 2004, 2003 and 2002, was $3.5
million, $3.9 million, and $4.0 million, respectively.

The Company's facility lease contains certain rental concessions and escalating
rental payments, which are recognized as adjustments to rental expense and are
amortized on a straight-line basis over the term of the lease.

During 2004, 2003 and 2002, the Company received $385,000, $170,000 and
$141,000, respectively, of sublease income, which is included in occupancy
expense. Future minimum sublease payments totaled $967,000 at December 31, 2004.

LITIGATION

Stanwich Litigation. CPS was a defendant in a class action (the Stanwich Case)
brought in the California Superior Court, Los Angeles County. The original
plaintiffs in that case were persons entitled to receive regular payments (the
Settlement Payments) under out-of-court settlements reached with third party
defendants. Stanwich Financial Services Corp. (Stanwich), an affiliate of the
former Chairman of the Board of Directors of CPS, is the entity that was

F-36

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

obligated to pay the Settlement Payments. Stanwich has defaulted on its payment
obligations to the plaintiffs and in June 2001 filed for reorganization under
the Bankruptcy Code, in the federal Bankruptcy Court of Connecticut. At
year-end, CPS was a defendant only in a cross-claim brought by one of the other
defendants in the case, Bankers Trust Company, which asserted a claim of
contractual indemnity against CPS.

Subsequent to year-end, CPS has settled the cross-claim of Bankers Trust by
payment of $3.24 million, on or about February 8, 2005. Pursuant to that
settlement, the court has dismissed the cross-claim, with prejudice.

In November 2001, one of the defendants in the Stanwich Case, Jonathan Pardee,
asserted claims for indemnity against the Company in a separate action, which is
now pending in federal district court in Rhode Island. The Company has filed
counterclaims in the Rhode Island federal court against Mr. Pardee, and has
filed a separate action against Mr. Pardee's Rhode Island attorneys, in the same
court. The action of Mr. Pardee against CPS is stayed, awaiting resolution of an
adversary action brought against Mr. Pardee in the bankruptcy court, which is
hearing the bankruptcy of Stanwich.

The reader should consider that any adverse judgment against CPS in the Stanwich
Case (or the related case in Rhode Island) for indemnification, in an amount
materially in excess of any liability already recorded in respect thereof, could
have a material adverse effect on the Company's financial position.

On June 2, 2004, Delmar Coleman filed a lawsuit in the circuit court of
Tuscaloosa, Alabama, making allegations similar to those that were asserted in
the Lang case, and seeking damages in an unspecified amount, on behalf of a
purported nationwide class. The Company removed the case to federal bankruptcy
court, and filed a motion for summary judgment as part of its adversary
proceeding against the plaintiff in the bankruptcy court. The federal bankruptcy
court granted the plaintiffs motion to send the matter back to Alabama state
court. The Company has appealed the ruling. Although the Company believes that
it has one or more defenses to each of the claims made in this lawsuit, no
discovery has yet been conducted and the case is in its earliest stages.
Accordingly, there can be no assurance as to its outcome.

The Company has recorded a liability as of December 31, 2004 that it believes
represents a sufficient allowance for legal contingencies. Any adverse judgment
against the Company, if in an amount materially in excess of the recorded
liability, could have a material adverse effect. The Company is involved in
various legal matters arising in the normal course of business. Management
believes that any liablility as a result of those matters would not have a
material effect on the Company's financial position, Results of Operations or
Cash Flows.

F-37

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(15) EMPLOYEE BENEFITS

The Company sponsors a pretax savings and profit sharing plan (the 401(k) Plan)
qualified under section 401(k) of the Internal Revenue Code. Under the 401(k)
Plan, eligible employees are able to contribute up to 15% of their compensation
(subject to stricter limitation in the case of highly compensated employees).
The Company, may, at its discretion, match 100% of employees contributions up to
$1,000 per employee per calendar year. The Company's contributions to the 401(k)
Plan were $409,000 for the year ended December 31, 2004. The Company did not
make a matching contribution in 2003 or 2002, other than to employees eligible
for the MFN Financial Corporation Retirement Savings Plan. Such contribution
amounted to $250,682 for the period from the Merger Date through December 31,
2002. The MFN Financial Corporation Retirement Savings Plan was merged into the
Company's 401(k) Plan in February 2003.

The Company also sponsors the MFN Financial Corporation Pension Plan (the Plan).
The Plan benefits were frozen June 30, 2001. The following table sets forth the
plans benefit obligations, fair value of plan assets, and funded status at
December 31, 2004 and 2003:

DECEMBER 31,
--------------------------------
2004 2003
------------- -------------
(In thousands)

CHANGE IN PROJECTED BENEFIT OBLIGATION
Projected benefit obligation, beginning of year ............... $ 15,023 $ 13,743
Service cost .................................................. -- --
Interest cost ................................................. 821 902
Settlements ................................................... -- --
Actuarial gain ................................................ (1,616) 1,578
Benefits paid ................................................. (545) (1,200)
------------- -------------
Projected benefit obligation, end of year .................. $ 13,683 $ 15,023
============= =============

The accumulated benefit obligation for the pension plan was $13.7 million and $15.0 million at
December 31, 2004 and 2003, respectively.

CHANGE IN PLAN ASSETS
Fair value of plan assets, beginning of year .................. $ 11,253 $ 9,906
Return on assets .............................................. 1,483 1,001
Employer contribution ......................................... 1,149 1,546
Benefits paid ................................................. (598) (1,200)
------------- -------------
Fair value of plan assets, end of year ..................... $ 13,287 $ 11,253
============= =============

RECONCILIATION OF ACCRUED PENSION COST AND
TOTAL AMOUNT RECOGNIZED
Funded status of the plan ..................................... $ (396) $ (3,770)
Unrecognized loss ............................................. 2,062 4,136
Unrecognized transition asset ................................. (46) (80)
Unrecognized prior service cost ............................... -- --
------------- -------------
Accrued pension cost ....................................... $ 1,620 $ 286
============= =============

Weighted average assumptions used to determine benefit obligations at December 31, 2004 and 2003
as follows:

WEIGHTED AVERAGE ASSUMPTIONS
Discount rate ................................................. 6.25% 6.25%
Expected return on plan assets ................................ 9.00% 9.00%
Rate of compensation increase ................................. N/A N/A

The Company's overall expected long-term rate of return on assets is 9.00% per annum. The expected
long-term rate of return is based on the weighted average of historical returns on individual asset
categories, which are described in more detail below.

F-38

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION
Prepaid benefit cost .......................................... $ -- $ 286
Accrued benefit liability ..................................... (396) (4,055)
Intangible asset .............................................. -- --
Accumulated other comprehensive income, pretax ................ 2,016 4,055
------------- -------------
Net amount recognized ...................................... $ 1,620 $ 286
============= =============

COMPONENTS OF NET PERIODIC BENEFIT COST
Service cost .................................................. $ -- $ --
Interest Cost ................................................. 821 902
Expected return on assets ..................................... (1,041) (872)
Amortization of transition (asset)/obligation ................. (35) (35)
Amortization of prior service cost ............................ -- --
Recognized net actuarial loss ................................. 69 98
------------- -------------
Net periodic benefit cost .................................. $ (186) $ 93
============= =============

UNFUNDED ACCUMULATED BENEFIT OBLIGATION AT YEAR-END
Accumulated Benefit Obligation ................................ $ 13,683 $ 15,023
Fair Value of Plan Assets ..................................... 13,288 11,253
Increase (decrease) in other comprehensive income ............. $ (2,039) $ 1,386

The weighted average asset allocation of the Company's pension benefits at December 31, 2004 and
2003 were as follows:

WEIGHTED AVERAGE ASSET ALLOCATION AT YEAR-END

ASSET CATEGORY
Domestic equity funds ......................................... 60.9% 51.0%
International equity funds .................................... 11.9% 10.7%
Domestic fixed income funds ................................... 27.1% 29.1%
Other ......................................................... 0.1% 9.2%
------------- -------------
Total ...................................................... 100.0% 100.0%
============= =============

CASH FLOWS

EXPECTED BENEFIT PAYOUTS
2005 .......................................................... $ 445
2006 .......................................................... $ 471
2007 .......................................................... $ 505
2008 .......................................................... $ 563
2009 .......................................................... $ 567
Years 2010 - 2014 ............................................. $ 3,519

Anticipated Contributions ..................................... $ --

The Company's investment policies and strategies for the pension benefits plan
utilize a target allocation of 70% equity securities and 30% fixed income
securities. The Company's investment goals are to maximize returns subject to
specific risk management policies. The Company addresses risk management and
diversification by the use of a professional investment advisor and several
sub-advisors which invest in domestic and international equity securities and
domestic fixed income securities. Each sub-advisor focuses its investments
within a specific sector of the equity or fixed income market. For the
sub-advisors focused on the equity markets, the sectors are differentiated by
the market capitalization and the relative valuation of the underlying issuer.
For the sub-advisors focused on the fixed income markets, the sectors are
differentiated by the credit quality and the maturity of the underlying fixed
income investment. The investments made by the sub-advisors are readily
marketable and can be sold to fund benefit payment obligations as they become
payable.

F-39

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(16) FAIR VALUE OF FINANCIAL INSTRUMENTS

The following summary presents a description of the methodologies and
assumptions used to estimate the fair value of the Company's financial
instruments. Much of the information used to determine fair value is highly
subjective. When applicable, readily available market information has been
utilized. However, for a significant portion of the Company's financial
instruments, active markets do not exist. Therefore, considerable judgments were
required in estimating fair value for certain items. The subjective factors
include, among other things, the estimated timing and amount of cash flows, risk
characteristics, credit quality and interest rates, all of which are subject to
change. Since the fair value is estimated as of December 31, 2004 and 2003, the
amounts that will actually be realized or paid at settlement or maturity of the
instruments could be significantly different. The estimated fair values of
financial assets and liabilities at December 31, 2004 and 2003, were as follows:

DECEMBER 31,
-------------------------------------------------------------
2004 2003
----------------------------- -----------------------------
Carrying Value Carrying Value
or Notional Fair or Notional Fair
Financial Instrument Amount Value Amount Value
- -------------------- ------------- ------------ -------------- ------------
(In thousands)

Cash ......................................... $ 14,366 $ 14,366 $ 33,209 $ 33,209
Restricted Cash .............................. 125,113 125,113 67,277 67,277
Finance receivables, net ..................... 550,191 550,191 266,189 266,189
Residual interest in securitizations ......... 50,430 50,430 111,702 111,702
Accrued interest receivable .................. 6,411 6,411 2,901 2,901
SeaWest note receivable ...................... 2,800 2,800 -- --
Warehouse lines of credit .................... 34,279 34,279 33,709 33,709
Notes payable ................................ 1,063 1,063 3,330 3,330
Residual interest financing .................. 22,204 22,204 -- --
Securitization trust debt .................... 542,815 539,749 245,118 245,118
Senior secured debt .......................... 59,829 59,829 49,965 49,965
Subordinated debt ............................ 15,000 15,113 35,000 35,506
Related party debt ........................... -- -- 17,500 17,763

CASH AND RESTRICTED CASH

The carrying value equals fair value.

FINANCE RECEIVABLES, NET

The carrying value approximates fair value because the related interest rates
are estimated to reflect current market conditions for similar types of
instruments.

RESIDUAL INTEREST IN SECURITIZATIONS

The fair value is estimated by discounting future cash flows using credit and
discount rates that the Company believes reflect the estimated credit, interest
rate and prepayment risks associated with similar types of instruments.

F-40

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCRUED INTEREST RECEIVABLE

The carrying value approximates fair value because the related interest rates
are estimated to reflect current market conditions for similar types of
instruments.

SEAWEST NOTE RECEIVABLE

The fair value is estimated by discounting future cash flows using credit and
discount rates that the Company believes reflect the estimated credit and
interest rate risks associated with similar types of instruments.

COMMITMENTS

The fair value of commitments to purchase contracts from Dealers is determined
by purchase commitments from investors and prevailing market rates.

WAREHOUSE LINES OF CREDIT, NOTES PAYABLE, RESIDUAL INTEREST FINANCING, AND
SENIOR SECURED DEBT

The carrying value approximates fair value because the related interest rates
are estimated to reflect current market conditions for similar types of secured
instruments.

SECURITIZATION TRUST DEBT

The fair value is estimated by discounting future cash flows using interest
rates that the Company believes reflect the current market rates.

SUBORDINATED DEBT

The fair value is based on a market quote.

RELATED PARTY DEBT

The fair value is based on the fair value of subordinated debt, as the terms and
structure are similar.

(17) LIQUIDITY

F-41

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

overcollateralization, if any, and the increase of Credit Enhancement to
required levels in securitization transactions, and income taxes. There can be
no assurance that internally generated cash will be sufficient to meet the
Company's cash demands. The sufficiency of internally generated cash will depend
on the performance of securitized pools (which determines the level of releases
from those pools and their related Spread Accounts), the rate of expansion or
contraction in the Company's managed portfolio, and the terms upon which the
Company is able to acquire, sell, and borrow against Contracts.

Contracts are purchased from Dealers for a cash price approximating their
principal amount, and generate cash flow over a period of years. As a result,
the Company has been dependent on warehouse credit facilities to purchase
Contracts, and on the availability of cash from outside sources in order to
finance its continuing operations, as well as to fund the portion of Contract
purchase prices not financed under revolving warehouse credit facilities. As of
December 31, 2004, the Company had $225 million in warehouse credit capacity, in
the form of a $125 million facility and a $100 million facility. The first
facility provides funding for Contracts purchased under the TFC Programs while
both warehouse facilities provide funding for Contracts purchased under the CPS
Programs. A third facility in the amount of $75 million, which the Company
utilized to fund Contracts under the CPS Programs, expired on February 21, 2004.
A fourth facility in the amount of $25 million, which the Company utilized to
fund Contracts under the TFC Programs, expired on June 24, 2004. These
facilities are independent of each other and provide funding equal up to
73.0-73.5% of the principal balance of the Contracts pledged, subject to
collateral tests and certain other conditions and covenants.

With the two currently existing facilities, two different financial institutions
purchase the notes issued by these facilities, and two different insurers insure
the notes (each a Note Insurer). The Note Insurer on the $125 million facility
is the controlling party whereas the lender on the $100 million facility is the
controlling party. Up through June 30, 2003, sales of Contracts to the special
purpose subsidiaries (SPS) related to the $75 million and $125 million
facilities had been treated as sales for financial accounting purposes. The
Company, therefore, removed these securitized Contracts and related debt from
its Consolidated Balance Sheet and recognized a gain on sale in the Company's
Consolidated Statement of Operations. Indebtedness related to Contracts funded
by the $25 million facility, however, were on the Company's Consolidated Balance
Sheet and no gain on sale has ever been recognized in the Company's Consolidated
Statement of Operations. During July 2003, each of the $75 million and $125
million facilities was amended, with the effect that subsequent use of such
facilities is treated for financial accounting purposes as borrowings secured by
such receivables, rather than as a sale of receivables. The effects of that
amendment are similar to those discussed above with respect to the change in
securitization structure.

F-42

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The $100 million warehouse facility is similarly structured to allow CPS to fund
a portion of the purchase price of Contracts by drawing against a floating rate
variable funding note issued by its subsidiary Page Funding LLC. Approximately
73.5% of the principal balance of Contracts may be advanced to the Company under
this facility, subject to collateral tests and certain other conditions and
covenants. Notes under this facility accrue interest at a rate of one-month
LIBOR plus 1.50% per annum. This facility was entered into on June 30, 2004 and
expires on June 30, 2007. The lender has annual termination options at its sole
discretion.

The $75 million warehouse facility which expired on February 21, 2004, was
similarly structured to allow CPS to fund a portion of the purchase price of
Contracts by drawing against a floating rate variable funding note issued by CPS
Funding LLC. Approximately 72.5% of the principal balance of Contracts could be
advanced to the Company under this facility, subject to collateral tests and
certain other conditions and covenants. Notes under this facility accrued
interest at a rate of one-month LIBOR plus 0.75% per annum. This facility
expired on February 21, 2004.

The $25 million warehouse facility was similarly structured to allow TFC to fund
a portion of the purchase price of Contracts by drawing against a floating rate
variable funding note issued by TFC Warehouse I LLC. Approximately 71% of the
principal balance of Contracts was advanced to TFC under this facility, subject
to collateral tests and certain other conditions and covenants. Notes under this
facility accrue interest at a rate of one-month LIBOR plus 1.75% per annum. This
facility was entered into as part of the TFC Merger on May 20, 2003 and expired
on June 24, 2004.

Certain of the Company's securitization transactions and the warehouse credit
facilities contain various financial covenants requiring certain minimum
financial ratios and results. Such covenants include maintaining minimum levels
of liquidity and net worth and not exceeding maximum leverage levels and maximum
financial losses. As a result of waivers and amendments to these covenants
throughout 2004 and during the first quarter of 2005, the Company was in
compliance with all such covenants as of December 31, 2004. In addition, certain
securitization and non-securitization related debt contain cross-default
provisions, which would allow certain creditors to declare default if a default
were declared under a different facility.

The Servicing Agreements of the Company's securitization transactions and
warehouse credit facilities are terminable by the insurers of certain of the
Trusts obligations (Note Insurers) in the event of certain defaults by the
Company and under certain other circumstances. Were a Note Insurer in the future
to exercise its option to terminate the Servicing Agreements, such a termination
would have a material adverse effect on the Company's liquidity and results of
operations. The Company continues to receive Servicer extensions on a monthly
and/or quarterly basis, pursuant to the Servicing Agreements.

F-43

CONSUMER PORTFOLIO SERVICES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(18) SELECTED QUARTERLY DATA (UNAUDITED)

QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
------------- ------------- ------------- -------------
(In thousands, except per share data)

2004
Revenues ................................... $ 27,522 $ 32,687 $ 34,913 $ 37,570
Income (loss) before income taxes .......... (1,407) (174) (2,061) (12,246)
Net income (loss) .......................... (1,407) (174) (2,061) (12,246)
Income (loss) per share:
Basic ................................... $ (0.07) $ (0.01) $ (0.10) $ (0.57)
Diluted ................................. (0.07) (0.01) (0.10) (0.57)

2003
Revenues ................................... $ 23,915 $ 25,104 $ 26,041 $ 29,926
Income (loss) before income taxes .......... 2,354 3,132 (2,852) (5,674)
Net income (loss) .......................... 6,278 2,642 (2,852) (5,674)
Income (loss) per share:
Basic ................................... $ 0.31 $ 0.13 $ (0.14) $ (0.28)
Diluted ................................. 0.29 0.12 (0.14) (0.28)

F-44